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JULY 10, 2013 

Serial No. 113-45 

Printed for the use of the Committee on Oversight and Government Reform 

Available via the World Wide Web: 

82-273 PDF WASHINGTON : 2013 

For sale by the Superintendent of Documents, U.S. Government Printing Office 
Internet: Phone: toll free (866) 512-1800; DC area (202) 512-1800 
Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001 


DARRELL E. ISSA, California, Chairman 

JOHN L. MICA, Florida 


JOHN J. DUNCAN, JR., Tennessee 

PATRICK T. McHENRY, North Carolina 



TIM WALBERG, Michigan 



PAUL A. GOSAR, Arizona 

PATRICK MEEHAN, Pennsylvania 

SCOTT DesJARLAIS, Tennessee 

TREY GOWDY, South Carolina 


DOC HASTINGS, Washington 





MARK MEADOWS, North Carolina 


RON Desantis, Florida 

ELIJAH E. CUMMINGS, Maryland, Ranking 
Minority Member 


JOHN F. TIERNEY, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

JIM COOPER, Tennessee 


JACKIE SPEIER, California 


MARK POCAN, Wisconsin 


ROBIN L. KELLY, Illinois 

DANNY K. DAVIS, Illinois 


TONY CARDENAS, California 



Lawrence J. Brady, Staff Director 
John D. Cuaderes, Deputy Staff Director 
Stephen Castor, General Counsel 
Linda A. Good, Chief Clerk 
David Rapallo, Minority Staff Director 




Hearing held on July 10, 2013 1 


The Hon. Gene L. Dodaro, Comptroller General of the United States: Accom- 
panied by Ms. Nancy Kingsbury, Steve Sebastian, Gary Engel, Asif Khan, 
Robert Dacey, Chris Migm 

Oral Statement 4 

Written Statement 7 



Wednesday, July 10, 2013, 

House of Representatives, 

Committee on Oversight and Government Reform, 

Washington, D.C. 

The committee met, pursuant to call, at 9:36 a.m., in Room 2247, 
Rayburn House Office Building, Hon. Darrell Issa [chairman of the 
committee], presiding. 

Present: Representatives Issa, Mica, Turner, Duncan, McHenry, 
Jordan, Walberg, Lankford, Amash, DesJarlais, Gowdy, Woodall, 
Collins, Meadows, Bentivolio, Cummings, Maloney, Lynch, 
Connolly, and Duckworth. 

Staff Present: Ali Ahmad, Majority Communications Advisor; 
Molly Boyl, Majority Senior Counsel and Parliamentarian; Law- 
rence J. Brady, Majority Staff Director; John Cuaderes, Majority 
Deputy Staff Director; Adam P. Fromm, Majority Director of Mem- 
ber Services and Committee Operations; Linda Good, Majority 
Chief Clerk; Michael R. Kiko, Majority Staff Assistant; Mark D. 
Marin, Majority Counsel; Tegan Millspaw, Majority Professional 
Staff Member; James Robertson, Majority Senior Professional Staff 
Member; Katy Rother, Majority Counsel; Laura L. Rush, Majority 
Deputy Chief Clerk; Scott Schmidt, Majority Deputy Director of 
Digital Strategy; Peter Warren, Majority Legislative Policy Direc- 
tor; Rebecca Watkins, Majority Deputy Director of Communica- 
tions; Jedd Bellman, Minority Counsel; Krista Boyd, Minority Dep- 
uty Director of Legislation/Counsel; Beverly Britton Fraser, Minor- 
ity Counsel; Jennifer Hoffman, Minority Communications Director; 
Elisa LaNier, Minority Director of Operations; Dave Rapallo, Mi- 
nority Staff Director. 

Chairman IsSA. The committee will come to order. 

The Oversight Committee exists to secure two fundamental prin- 
ciples. First, Americans have a right to know the money takes from 
them is well spent. And second, Americans deserve an efficient, ef- 
fective government that works for them. Our duty on the Oversight 
and Government Reform Committee is to protect these rights. Our 
solemn responsibility is to hold Government accountable to tax- 
payers, because taxpayers have a right to know what they get from 
their government. It is our job to work tirelessly in partnership 
with citizen watchdogs and the GAO to deliver the facts to the 
American people and bring genuine reform to the Federal bureauc- 

( 1 ) 


Imagine beginning every month not knowing how much money 
you have and not being able to track what money has been spent. 
Personally, in our family it is unthinkable. Yet month after month, 
year after year, that is exactly where the Federal Government op- 
erates. The American people are periodically reminded of this when 
we talk about the upcoming debt ceiling. And yet the debt ceiling 
seems to move not by hours or days, but by weeks and then months 
and often nearly a year, as money is somehow found and consumed 
that was claimed not to be there. 

That is not entirely a shell game, but rather the reality that 
until they go looking for it, they don’t know where it is. When they 
find it, they often don’t know how much they have. It is unbeliev- 
able, it is unverifiable. And it is unaccountable. We have no idea 
how much money is spent and how much we owe. We have yet 
close approximations. 

And more and more. President Obama keeps asking the Amer- 
ican people to trust government and to give them more authority 
with your money. For all the promises of reform and modernization 
in government, the reality is, the promises have fallen short, no re- 
form has occurred, and in fact, this committee has found that it is 
harder and harder to get execution of existing accountability. 

As chairman at this time, I have to remember that this is not 
a new problem. Is it a problem exacerbated by new government 
programs? Certainly the looming Affordable Care Act creates the 
likelihood that we will be administering over a large portion of our 
gross domestic product at a Federal level. 

In fact, later in this July session, we will be looking at whether 
we can secure the records of every American’s taxes, I repeat, every 
American’s taxes, when they are put out as part of the Affordable 
Care Act. This is a large undertaking, and one that involves huge 
privacy issues. 

Now, health care records and your income and financial spending 
wouldn’t seem to be linked, except they are all linked by whether 
or not computer systems work. They are all linked by whether ac- 
counting systems work, and they are all linked by whether or not 
the system the government employs to authorize people to make 
entry, to oversee entry and to analyze the actual current state all 
is the same. 

So the accuracy of your health care, the protection of your pri- 
vacy and whether we can track tax dollars all are effectively the 
same problem. But rather than looking at an individual who finds 
themselves with their entire health record on the internet, or per- 
haps millions of veterans who find that their personal information 
was taken home on a laptop and somehow the laptop was lost and 
as a result personal information can be available on millions of 

In the case of the GAO’s look, and its blunt, straightforward 
analysis that this government is broken, allows us to see it quan- 
titatively in dollars and cents. This is not to say that this problem 
began on this President’s watch, but it is this President’s watch, it 
is the ranking member’s watch and it is my watch. 

So today, we want to say to the American people, don’t expect 
miracles, but do expect government to begin performing basic math 
better. We live in the 21st century. There are companies who today 


are trying to figure out how to reacquire tens of billions of dollars 
that are stranded overseas from their profits that did not exist, I 
repeat, did not exist when many on the dais came to Congress. 
Companies have been formed, accounting systems created, vast ca- 
pability to analyze and be accurate to the penny and meet the re- 
quirements of public accounting have occurred with companies that 
did not exist a decade ago. 

If we can create great institutions from scratch, tilt them up and 
make their information secure and available to seven billion people 
around the world and do it in the time that Mr. Cummings and I 
have served in Congress, then how is it that we are worse off, no 
better off when it comes to government accountability than we 
were at the time that my ranking member and I came to Congress? 
That is part of why we will hear today, and I recognize the ranking 
member for his opening statement. 

Mr. Cummings. Thank you very much, Mr. Chairman. And I 
thank you for holding this hearing. 

I want to thank you, Mr. Dodaro, for testifying today. I appre- 
ciate the work that you and your staff have put into the reports 
that form the basis for your testimony today. And I trust that you 
will express the appreciation of our committee for the very hard 
and excellent work. 

This hearing focuses on two areas that are the core of this com- 
mittee’s jurisdiction: government financial data and government 
performance data. In order to be efficient and effective, the govern- 
ment has to know how much money it has, how much money it is 
spending, and whether that money is being spent wisely. The Gov- 
ernment Accountability Office performs an audit each year of the 
consolidated financial statements of the government, which are 
prepared by the Department of Treasury in coordination with the 
Office of Management and Budget. 

In January, GAO reported that it could not, could not express an 
opinion on the audit of the government’s books for fiscal years 2011 
and 2012. This is not a new problem. GAO has not been able to 
express an audit opinion on the government’s books since it started 
performing these audits in 1997. 

The Department of Defense is one of the main reasons GAO is 
unable to give an audit opinion. The DOD is responsible for more 
than half of the Federal Government’s discretionary spending, but 
it is unable to prepare auditable financial statements. GAO has in- 
cluded DOD financial management in its high risk list in 1995. 

In its 2013 high risk report, GAO said this: “DOD is one of the 
few federal entities that cannot accurately account for its spending 
or assets. It is one of three major impediments that prevent GAO 
from rendering an opinion on the annual consolidated financial 
statements of the Federal Government. Without accurate, timely 
and useful financial information, the DOD is severely hampered in 
making sound decisions affecting its operations.” 

On the other hand, the Department of Homeland Security has 
made major improvements. For the first time, DHS received a 
qualified audit opinion for fiscal year 2012. This is the result of a 
concerted effort by the Secretary and other DHS officials to im- 
prove the Department’s financial management. It is also the result 


of the work of this committee holding the Department accountable 
through hearings and briefings. 

Fiscal responsibility is about more than just balancing books. It 
is also critical for the government to know whether the money that 
is spent is doing what it was intended to do. In 2011, the President 
signed into law the Government Performance and Results Mod- 
ernization Act of 2010. That law was sponsored by Representative 
Henry Cuellar and it was approved on a bipartisan basis by this 
committee. The Act required GAO to conduct assessments of the 
law’s implementation, and on June 26th, GAO issued its report. 
GAO found that the government has made major strides through 
implementation of the law. 

John Kominsky, a senior fellow with the IBM Center for the 
Business of Government, offered this conclusion as his takeaway 
from the GAO report: “The key story that stands out for me is that 
the conceptual framework of the GPRA Modernization Act and the 
actual use of its provisions, such as priority setting and data driven 
progress reviews, are seen as effective by agency managers.” 

GAO also found a number of areas that need improvement. For 
example, GAO found that agencies are not doing enough to track 
issues that cut across agencies, such as climate change and food 
safety. I look forward to hearing GAO’s recommendations for how 
the government can do better, both in terms of financial manage- 
ment and performance management. 

With that, I yield back. 

Chairman ISSA. I thank the gentleman. All members will have 
seven days to submit opening statements and extraneous materials 
for the record. 

We now recognize our panel. We recognize the Honorable Gene 
Dodaro, who is the Comptroller General of the United States. We 
ask the following GAO advisors accompanying Mr. Dodaro to stand 
and be sworn at the same time. And if there are any others other 
than the ones I mention, please let me know. 

Nancy Kingsbury, Ga^ Engel, Robert Dacey, Steve Sebastian, 
Asif Khan and Chris Mihm. Is that complete? Would you please 
rise and raise your right hand to be sworn? 

Do you solemnly swear or affirm that the testimony you are 
about to give will be the truth, the whole truth and nothing but 
the truth? 

[Witnesses respond in the affirmative]. 

Chairman IssA. Let the record indicate that all witnesses an- 
swered in the affirmative. 

Mr. Dodaro, you have been here so often that to say please bear 
in mind that your entire statement will be placed into the record 
would be redundant. So I will dispense with that. The gentleman 
is recognized. 



Mr. Dodaro. Thank you very much, Mr. Chairman, Ranking 
Member Cummings, members of the committee. I am pleased to be 
here today to discuss GAO’s Audit of the Consolidated Financial 
Statements of the Federal Government, and also our assessment of 


the initial implementation of the Government Performance and Re- 
sults Modernization Act of 2010. 

As it relates to the financial management of the Federal Govern- 
ment, we reported 21 of the 24 largest departments and agencies 
were able to receive an unqualified opinion for fiscal year 2012 
statements. However, as has been pointed out in opening state- 
ments, there are serious material weaknesses in internal controls 
and financial reporting that have prevented us from being able to 
give an opinion on the consolidated financial statements of the 
United States Government. The three major impediments are seri- 
ous financial management problems at the Department of Defense, 
the inability to eliminate intra-governmental transactions among 
Federal departments and agencies, and an ineffective process to 
compile the financial statements of the Federal Government. 

DOD, 0MB and Treasury are all seeking to rectify these weak- 
nesses. But our assessment is that much more work needs to be 
done in order to address these issues and put the Federal Govern- 
ment in a position where it can get an opinion on its consolidated 
financial statements. 

We were also unable to express an opinion on the statement of 
social insurance, which covers Social Security and Medicare pro- 
grams, due to the uncertainties associated with the estimates for 
restraining cost growth under the Medicare program. 

With regard to other areas we pointed out in that report, we also 
pointed out that there were internal control weaknesses in im- 
proper payments and computer security across the government, 
and made other observations and recommendations. 

Now, with regard to performance management, the Moderniza- 
tion Act of 2010, the initial implementation of setting up the re- 
quirements for the Act has taken place. The Administration has set 
interim cross-cutting goals, the agencies have set priority goals. 
They have assigned responsibilities as outlined in the Act for per- 
formance officers in the departments and agencies, and they are 
beginning to hold quarterly progress reviews, performance reviews 
that are required under the Act. 

However, there are a number of significant areas that we pointed 
out where there are remaining weaknesses and opportunities for 
improvement. First of all, we find little improvement in the use of 
performance measurements and information from the survey we 
did for this work in 2012, compared to 1997. So there is a need to 
really increase the use of the information and the usefulness of the 
information there as well. We also pointed out where there are 
areas where there have been difficulties in measuring performance 
that have yet to be overcome, for example, in the grants and con- 
tracts area. So there is a lot of room for improvement and actually 
developing better, more complete and useful performance meas- 

We found there were missed opportunities in cross-cutting areas 
across the government where programs were included to be meas- 
ured, but not tax expenditures. So the performance at tax expendi- 
tures needs to come under greater scrutiny as well as to whether 
it is achieving its objectives or not, and assessing government-wide 
priority goals as well. 


We also found the law requires that there be a public website set 
up to increase transparency. That has been done, but the website 
can be improved greatly in terms of its usefulness and trans- 
parency. We made recommendations that more work is done 
inassessing the needs of people in the Congress and the public to 
use that information to make it more transparent and useful to the 
American public. 

We also found little evidence of meaningful consultations with 
the Congress. 

Chairman IssA. Could you repeat that? 

Mr. Dodaro. Yes. We found little evidence that there were mean- 
ingful consultations with the Congress in this case, and made rec- 
ommendations there be better documentation. One of the main ob- 
jectives of this Act, even though the original 1993 Act required con- 
sultations with the Congress, the 2010 Act was to increase those 
consultations and require them to be documented by the agencies 
in their reporting. That hasn’t been done to, we think, the inten- 
tions and the expectations of the Congress. 

So we made many recommendations in all these areas to 0MB. 
They have agreed to implement all the recommendations, so we 
will be tracking their progress in our future reports on these areas 
as well as on the consolidated financial statement. 

So just in closing, I would say, and I want to underscore, mean- 
ingful improvement in financial management and performance 
management will not occur without greater leadership on the part 
of the Executive Branch and rigorous oversight by the Congress. It 
is needed in order to have financial and performance data that are 
commensurate with dealing with the significant problems we have 
in the Federal Government, both fiscal management and perform- 
ance. I applaud the committee for holding this hearing, and I look 
forward to continuing the work with you and the Congress and the 
Administration in bringing about meaningful reform. 

Thank you. 

[Prepared statement of Mr. Dodaro follows:] 


United States Government Accountability Office 



Before the Committee on Oversight and 
Government Reform, House of 

For Release on Deiiveiy 

Expected at 9:30 a.m. EOT 
Wednesday, July 10, 2013 


More Reliable and Complete 
Information Needed to 
Address Federal 
Management and Fiscal 

statement of Gene L. Dodaro 

Comptroller General of the United States 

GAO-1 3-752T 



Hi ghlights 

Highlights of GAO-1 3-752T, a testimony 
before the Committee on Oversight and 
Government Reform, House of 

Why GAO Did This Study 

To operate as effectively and efficiently 
as possible and to make difficult 
decisions to address the federal 
government’s management and fiscal 
challenges, Congress, the 
administration, and federal managers 
must have ready access to reliable and 
complete financial and performance 
information— 430th for individual federal 
entities and programs and for 
government as a whole. GAO is 
required to annually audit the 
consolidated finandal statements of 
the U.S. government in addibon, GAO 
is required to periodically report on 
federal agendas’ efforts to increase 
the use of performance Information in 
government and to take a more 
crosscutting and integrated perspective 
on performance. 

This testimony presents the results of 
GAO'S recent audits and reviews 
related to (1) the U.S. governments 
consolidated financial statements for 
fiscal year 2012, and (2) executive 
branch implementation of key 
provisions of the GPRA Modernization 
Act of 2010. 

What GAO Recommends 

Over the years, GAO has made 
numerous recommendations directed 
at Improving federal financial 
management. The federal government 
has generally taken or plans to take 
actions to address GAO’s 
recommendations. GAO has also 
made numerous recommendations to 
0MB to more fuity impiement the 
GPRA Modernization Act of 2010. 

0MB staff agreed with these 

View GAO-1 3-752T. For more information, 
contact Robert F. Dacey or Gary T. Engel at 
(202) 512-3406, or J. Christopher Mihm at 
(202) 512-6806, 


More Reliable and Complete Information Needed to 
Address Federal Management and Fiscal Challenges 

What GAO Found 

Three long-standing major impediments prevented GAO from expressing an 
opinion on the U.S. government’s 2012 accrual-based consolidated financial 
statements: (1) serious financial management problems at the Department of 
Defense (DOD), (2) the federal government’s inability to adequately account for 
and reconcile intragovemmental activity and balances between federal entities, 
and (3) the federal government's ineffective process for preparing the 
consolidated financial statements. Also, GAO was prevented from expressing 
opinions on the 2012 social insurance-related statements because of significant 
uncertainties primarily related to the achievement of projected reductions in 
Medicare cost growth reflected in the statements. 

DOD continues to work to address its financial management challenges with the 
goal of full financial statement auditability, but has much work to do if the 
department Is to meet its audit readiness and financial management 
improvement goals. In addition, the Department of the Treasury, in coordination 
with the Office of Management and Budget (0MB). is taking actions to address 
issues related to intragovemmental activity and preparation of the consolidated 
financial statements, but additional efforts and sustained commitment are 
required to fully resolve these issues. 

The 2012 Financial Report of the United States Government included 
comprehensive long-term fiscal projections, which provide a much-needed 
perspective on the federal government's long-term fiscal position and outlook. 
These, like GAO’s simulations, include the savings provided by the Budget 
Control Act of 201 1 . yet still show an unsustainable long-term fiscal path. 

As GAO reported in June 2013, the executive branch has taken a number of 
steps to implement key provisions of the GPRA Modernization Act of 2010 
(GPRAMA or the act), such as the development of interim cross-agency and 
agency-specific priority goals and use of data-driven quarterly performance 
reviews. However, the executive branch needs to do more to fully implement and 
leverage the act’s provisions to address governance challenges in the following 
five areas: (1) 0MB and agencies have made some progress addressing 
crosscutting issues, but are missing additional opportunities such as assessing 
the performance of tax expenditures; (2) while Key performance management 
practices hold promise, ensuring performance infoimation is useful and used by 
managers to improve results remains a weakness. For example. GAO found little 
improvement in federal managers’ reported use of performance information or 
practices that could help promote its use, based on its periodic government-wide 
surveys of federal managers since 1 997. Moreover, only 37 percent of managers 
reported that a program evaluation had been completed in the past 5 years of 
any program or operation they were involved in; (3) agencies have taken steps to 
align daily operations with agency results, but continue to face difficulties 
measuring performance in areas such as grants and contracts; 

(4) communication of performance information could better meet users’ needs; 
and (5) agency performance information is not always useful for congressional 
decision making. GAO found little evidence that meaningful consultations 
occurred with Congress related to agency strategic pians and agency priority 

United States Government Accountability Office 


Chairman Issa, Ranking Member Cummings, and Members of the 

I appreciate the opportunity to be here today to discuss our reports on the 
U.S. government’s consolidated financial statements for fiscal years 2012 
and 201 1 and on the federal government's progress in implementing the 
GPRA Modernization Act of 2010 (GPRAMA or the act).^ The federal 
government is one of the world's largest and most complex entitles, with 
about $3.5 trillion in outlays in fiscal year 2012, funding an extensive 
array of programs and operations. Moreover, it faces a number of 
significant fiscal, financial management, and performance management 
challenges in responding to the diverse and increasingly complex issues 
it seeks to address. 

To operate as effectively and efficiently as possible and to make difficult 
decisions to address the federal government’s management and fiscal 
challenges. Congress, the administration, and federal managers must 
have ready access to reliable and complete financial and performance 
information — both for individual federal entities and programs and for 
government as a whole. The government has made important progress 
since the enactment of key federal financial management reforms in the 
1990s and continues to address significant financial management and 
long-term fiscal challenges. The act, which updated the Government 
Performance and Results Act of 1993 (GPRA),“ was intended to help 
increase the use of performance information in government and to take a 
more crosscutting and integrated perspective on performance 
management. However, our reports on the U.S, government's 
consolidated financial statements and on the implementation of the act 
illustrate that further improvements to federal financial and performance 
management are urgently needed, I would like to commend you, Mr. 

’The Secretary of the Treasury, in coordination with the Director of the Office of 
Management and Budget, is required to annually submit audited financial statements for 
the U.S. government to the President and Congress. GAO is required to audit these 
financial statements. The Government Management Reform Act of 1 994 has required 
such reporting, covering the executive branch of government, beginning with the financial 
statements prepared for fiscal year 1997, 31 U.S.C. 331(e). The federal government has 
elected to include certain financial information on the legislative and judicial branches in 
the consolidated financial statements as well. 

^Pub. L. No. 111-362, 124Stal 3866 (Jan. 4,2011). 

¥ub, L. No. 103-62. 107 Slat. 285 (Aug. 3, 1993), 

Page 1 



Chairman, and this committee, for holding this oversight hearing on these 
important subjects. Congressional oversight is critical to assuring 
continued progress. 

This testimony is based on several reports issued in 2013. In January 
2013, v/e Issued our report on the results of our audit of the U.S. 
government’s fiscal years 2012 and 201 1 consolidated financial 
statements, which along with the financial statements, are contained in 
the fiscal year 2012 Financial Report of the United States Government 
{Financial Report).^ We performed sufficient audit work to provide our 
report on the consolidated financial statements, internal control, and 
compliance with selected provisions of laws and regulations. We 
conducted our audit in accordance with U.S. generally accepted 
government auditing standards. Our audit report would not be possible 
without the commitment and professionalism of inspectors general 
throughout the federal government who are responsible for annually 
auditing the financial statements of individual federal entities. 

The act includes provisbns requiring us to review its implementation at 
several critical junctures.® In June 2013, we issued a report highlighting 
the key findings from several reports issued over the past 2 years 
covering the executive branch’s Implementation of key provisions of the 
act and how the executive branch can more fully implement and leverage 
the act to address pressing governance challenges.® The report also 
included the results of our most recent survey of federal managers on the 
implementation of key performance management practices across 

GAO. Financial Audit U. S. Government's Fiscal Years 2012 and 201 1 Consolidated 
Financial Statements. GAO-13-271R (Washington, D C.: Jan. 17, 2013), The Financial 
Report is available through the Department of the Treasury at 
http://www.fms.treas. 90 v/fr/index.html- Also, see GAO, Understanding the Primary 
Components of the Annual Financial Report of the United States Government, 
GAO-09-946SP (Washington, D C.: September 2009). 

®For more information on our reports reviewing initial implementation of the act, see GAO, 
Managing for Results: Executive Branch Should More Fully Implement the GPRA 
Modernization Act to Address Pressing Governance Challenges, GAO-13-518 
(Washington. O.C.: June 26. 2013). For more details on the scope and methodology for 
this wort<, see app. I of GAO-13-518. 

®See GAO-13-518. For the full results of our 2013 survey, see GAO. Managing for 
Results: 2013 Federal Managers Survey on Organization Performance and Management 
Issues, an E-Supplement to GAO-13-518. GAO-13-519SP (Washington, D C.: June 

Page 2 



government— the filth such survey we have undertaken since 1997. In 
addition to the survey, we reviewed the act, related Office of Management 
and Budget (OMB) guidance, and our past and recent work related to 
federal performance management and the act, as well as interviewed 
OMB staff. Based, in part, on some of the results of our federal managers’ 
survey, we also issued a report in June 201 3 on strategies to facilitate 
agencies’ use of program evaluations.^ in addition to the survey, we 
interviewed OMB staff and evaluators at five agencies within the 
Departments of Agriculture, Health and Human Services, and Labor 
selected for their evaluation experience. We conducted our performance 
audits in accordance with generally accepted government auditing 

Results of Our Audit 
of the U.S. 
Financial Statements 
for Fiscal Years 2012 
and 2011 

The federal government was unable to demonstrate the reliability of 
significant portions of its accrual-based consolidated financial statements 
for fiscal years 2012 and 201 1 , principally resulting from limitations 
related to certain material weaknesses in internal control over financial 
reporting." For example, about 34 percent of the federal government’s 
reported total assets as of September 30, 2012, and approximately 21 
percent of the federal government’s reported net cost for fiscal year 2012, 
relate to the Department of Defense (DOD), which received a disclaimer 
of opinion on its consolidated financial statements. As a result, we were 
unable to provide an opinion on the accrual-based consolidated financial 
statements of the U.S. government. Further, significant uncertainties, 
primarily related to the achievement of projected reductions in Medicare 
cost growth reflected in the 2012, 201 1 , and 2010 Statements of Social 
Insurance," prevented us from expressing opinions on those 

^GAO, Program Evaluation: Strategies to Facilitate Agencies’ Use of Evaluation in 
Program Management and Policy Making, GAO-1 3-570 {Washington, D C,; June 26, 
2013). For more details on the scope and methodology for this work, see app. I of 
GAO-1 3-570. 

®A material weakness is a deficiency, or combination of deficiencies, in internal control 
such that there is a reasonable possibility that a material misstatement of the entity’s 
finandal statements will not be prevented, or detected and corrected, on a timely basis. A 
deficiency in internal control exists when the design or operation of a control does not 
allow management or employees, in the normal course of performing their assigned 
hinctions, to prevent, or detect and correct, misstatements on a timely basis. 

®These uncertainties are discussed in Note 26 to the consolidated financial statements. 

Page 3 

GAO-1 3-752T 


statements,™ as well as on the 2012 and 201 1 Statements of Changes in 
Social Insurance Amounts. Given the importance of social insurance 
programs, such as Medicare and Social Security to the federal 
government's long-term fiscal outlook, the Statement of Social Insurance 
is critical to understanding the federal government’s financial condition 
and fiscal sustainability. 

The federal government did not maintain adequate systems or have 
sufficient, reliable evidence to support certain material information 
reported in the U.S. government's accrual-based consolidated financial 
statements. The underlying long-standing material weaknesses in internal 
control contributed to our disclaimers of opinion on the U.S. government’s 
accrual-based consolidated financial statements for the fiscal years 
ended September 30, 2012 and 2011.” Specifically, these weaknesses 
concerned the federal government's inability to 

• satisfactorily determine that property, plant, and equipment and 
inventories and related property, primarily held by DOD, were properly 
reported in the accrual-based consolidated financial statements; 

• reasonably estimate or adequately support the amounts reported for 
certain liabilities, such as environmental and disposal liabilities, or 
determine whether commitments and contingencies were complete 
and properly reported; 

• support significant portions of the reported total net cost of operations, 
most notably related to DOD, and adequately reconcile disbursement 
activity at certain federal entities; 

. adequately account for and reconcile intragovernmental activity and 
balances between federal entities; 

• ensure that the federal government's accrual-based consolidated 
financial statements were (1) consistent with the underlying audited 

expressed unqualified oprntons on the 2009 and 2008 Statements of Social 

”a more detailed description of the material weaknesses that contributed to our 
disclaimer of opinion, including the primary effects of these material weaknesses on the 
accrual-based consolidated financial statements and on the management of federal 
government operations, can be found on pages 237 through 242 of the Financial Report. 

Page 4 



entities’ financial statements, (2) properly balanced, and (3) in 
conformity with U.S. generally accepted accounting principles (U.S. 
GAAP); and 

• identify and either resolve or explain material differences between 
(1) components of the budget deficit that are used to prepare certain 
information in the consolidated financial statements and (2) related 
amounts reported in federal entities' financial statements and 
underlying financial information and records. 

These material weaknesses continued to (1) hamper the federal 
government's ability to reliably report a significant portion of its assets, 
liabilities, costs, and other related information; (2) affect the federal 
government's ability to reliably measure the full cost as well as the 
financial and nonfinancial performance of certain programs and activities; 
(3) impair the federal government’s ability to adequately safeguard 
significant assets and properly record various transactions; and (4) hinder 
the federal government from having reliable financial information to 
operate in an efficient and effective manner. 

We also reported certain other material weaknesses,’* including the 
federal government's inability to (1) determine the full extent to which 
improper payments occur and reasonably assure that appropriate actions 
are taken to reduce improper payments,'* and (2) identify and resolve 
information security control deficiencies and manage information security 
risks on an ongoing basis. 

Since the enactment of key financial management reforms in the 1990s, 
important progress has been made improving financial management 
activities and practices. For fiscal year 2012, 21 of 24 Chief Financial 
Officers (CFO) Act agencies were able to attain unqualified audit opinions 
on their accrual-based financial statements, up from 6 CFO Act agencies 
for fiscal year 1996." Also, for the first time, the Department of Homeland 

’*A more detaifed discussion of these weaknesses, including the primary effects of the 
material weaknesses on the accrual-based consolidated financial statements and on the 
management of federal government operations, can be found on pages 243 through 245 
of the Financial Report- 

’^Federal entities reported estimates of improper payment amounts that totaled 
$107.7 billion for fiscal year 2012, which represented approximately 4.4 percent of about 
$2.5 trillion of reported outlays for the associated programs. 

''^See app. I for the fiscal year 2012 audit results for the 24 CFO Act Agencies. 



Security (DHS) was able to obtain a qualified audit opinion on its 
department-wide financial statements — a significant achievement for 
DHS. Further, the preparation and audit of financial statements have 
identified numerous deficiencies, leading to actions to strengthen controls 
and systems. However, many of the CFO Act agencies continue to 
struggle with financial systems that do not meet the needs of 
management for reliable, useful, and timely financial information. 

The Federai Financial Management Improvement Act of 1996 (FFMIA) 
was designed to lead to system improvements that would result in CFO 
Act agency managers routinely having access to reliable, useful, and 
timely financial-related information with which to measure performance 
and increase accountability throughout the year.'® FFMIA requires 
auditors, as part of the 24 CFO Act agencies’ financial statement audits, 
to report whether those agencies' financial management systems 
substantially comply with (1) federal financial management systems 
requirements, (2) applicable federal accounting standards, and (3) the 
federal government's U. S. Standard General Ledger at the transaction 

For both fiscal years 2012 and 2011, auditors for 1 1 of the 24 CFO Act 
agencies reported that the agencies' financial management systems did 
not substantially comply with one or more of the three FFMIA 
requirements. Often, federal entities expend major time, effort, and 
resources to develop financial information that their systems should be 
able to provide on a daily or recurring basis. Therefore, it is important for 
the individual federal entities to remain committed to maintaining the 
progress that has been achieved in obtaining positive audit results and to 
build upon that progress to make needed improvements in federal 
financial management systems. 

Addressing Impediments 
to an Opinion on the 
Consolidated Rnancial 

Three long-standing major impediments continued to prevent us from 
expressing an opinion on the U.S. governments accrual-based 
consolidated financial statements: (1) serious financial management 
problems at DOD, (2) the federal governments inability to adequately 
account for and reconcile intragovernmental activity and balances 

'®FFMIA, which is reprinted in 31 U.S.C. 3512 note. 




between federal entities, and (3) the federal government's ineffective 
process for preparing the consolidated financial statements. 

Improving Rnancial DOD continues to work toward the long-term goal of improving financial 

Management at DOD management and full financial statement auditability. The National 

Defense Authorization Act (NDAA) for Fiscal Year 2010 requires that 
DOD's Financial Improvement and Audit Readiness (FIAR) Plan set as its 
goal that the department’s financial statements be validated as ready for 
audit by September 30, 2017.® In addition, the NDAA for Fiscal Year 
201 3 requires that the FIAR Plan also describe specific actions to be 
taken and the cost associated with ensuring that DOD's Statement of 
Budgetary Resources (SBR) is validated as ready for audit by 
September 30, 2014.” DOD’s FIAR Plan and semiannual status reports 
define the activities, corrective actions, and interim milestones the 
department has deemed necessary to achieve auditability and the 
availability of reliable, useful, and timely information for management 
decision making. Under its FIAR Plan, DOD is focusing on improving 
controls, systems, and processes relied on to provide financial 
information in two areas that are critical to managing its operations: 

(1) budgetary information and (2) accountability over its mission-critical 

Based on difficulties encountered in auditing the SBR of the Marine 
Corps, in August 2012, DOD's FIAR Governance Board approved a 
significant change to the FIAR methodology that will limit the scope of 
first-year SBR audits for all DOD components. As outlined in the March 
2013 revised FIAR Guidance, the scope of the SBR audits beginning in 
fiscal year 201 5 will be on budget activity only in the current-year 
appropriations as an interim step toward achieving an audit of the SBR. in 
subsequent years, the components will commence audits of schedules of 
both current-year and prior-year audited appropriations and all related 
activity against those appropriated funds. 

L. No. 111-84, § 1003(aK2)(A)(ii), 123 Stat. 2190, 2440 (Oct, 26, 2009) (reprinted 
in 10 U S.C. § 2222 note). Prior to enactment of this law, DOD had been using the 
September 30, 2017 date as its internal goal since 2008. 

”NDAA (or Fiscal Year 2013, Pub, L. No. 112-239, § 1005(a), 126 Stat. 1632, 1904 
{dan. 2. 2013) {reprinted in 10 U.S.C, § 2222 note). 

Page 7 



While DOD has made efforts to improve its financial management, we 
found significant internal control, financial management, and systems 
deficiencies in DOD's processes and procedures for maintaining 
accountability for billions of dollars in funds and other resources. For 
example, we found that 

. the Army and the Defense Finance and Accounting Service (DFAS) 
could not readily identify the full population of payroll accounts 
associated with the Army’s $46 billion active duty military payroll 
because of deficiencies in existing procedures and nonintegrated 
personnel and payroll systems,’® 

• DFAS could not detect and correct all errors in active duty military 
payroll disbursements because of deficiencies in its processes,’® 

• DOD's improper payment estimates reported in its fiscal year 201 1 
Agency Financial Report were neither reliable nor statistically valid 
because of long-standing and pervasive financial management 
weaknesses and significant deficiencies in the department’s 
procedures related to estimating improper payments,®” and 

• DOD continues to encounter difficulties in implementing its planned 
Enterprise Resource Planning (ERP) systems on schedule and within 
budget,®’ due to significant operational problems and significant 
delays in deploying key ERP systems.®® 

’®GAO, DOD Financial Management: The Army Feces Significant Challenges in Achieving 
Audit Readiness for Its Military Pay. GAO- 12-406 (Washington, D.C.: Mar. 22, 2012), 

’®GAO. DOD Financial Management: Actions Needed to Address Deficiencies in Controls 
over Army Active Duty Military Payroll. GAO'13-28 (Washington, D.C.: Dec. 12, 2012). 

^®GAO. DOD Financial Management: Significant Improvements Needed in Efforts to 
Address Improper Payment Requirements, GAO-13-227 (Washington, D.C,: May 13, 

^^The effective implementation of ERP systems will be critical to the success of ail of 
DOD’s planned long-term financial improvement efforts. ERP systems are integrated, 
multifunction systems that perform business-related tasks such as general ledger 
accounting and supply chain management. DOD considers their implementation essential 
to transforming its business operations and achieving Its goals of audit readiness by fiscal 
year 2017. 

^^GAO, DOD Financial Management: Implementation Weaknesses in Army and Air Force 
Business Systems Could Jeopardize DOD's Auditability Goals, GAO-1 2-1 34 (Washington. 
D.C.;Feb. 28, 2012). 

Page 8 



We have made numerous recommendations to DOD to address these 
financial management issues. While we are encouraged by DOD’s 
sustained commitment to improving financial management and achieving 
audit readiness, several DOD business practices, including financial 
management, remain on GAO’s list of high-risk programs.^^ DOD faces 
considerable challenges and has much work to do if it is to meet its audit 
readiness goals. DOD's continued oversight and monitoring will play a 
key role in ensuring that the FIAR Plan is implemented as intended, and 
lessons learned are identified and effectively disseminated and 
addressed." While DOD’s May 2013 FIAR Plan status report reiterated 
the department's commitment to achieving its audit readiness goals, it 
noted that absent a stable budget environment, DOD's efforts were 
subject to increased risk. Continued congressional oversight of DOD’s 
financial management improvement efforts will be critical to helping 
ensure DOD achieves its audit readiness goals. To assist Congress in its 
oversight efforts, we will continue to monitor DOD's progress and provide 
feedback on the status of its financial management improvement efforts. 

Reconciling Intragovemmental Since the first audit of the U.S. government's fiscal year 1997 

Activity and Balances consolidated financial statements, we have reported a material weakness 

related to the federal government's Inability to adequately account for and 
reconcile intragovemmental activity and balances between federal 
entities, as well as between federal entities and the General Fund,^® 
When preparing the consolidated financial statements, intragovemmental 
activity and balances between federal entities and between federal 
entities and the General Fund should be in agreement and must be 
subtracted out, or eliminated, from the financial statements. If the two 
federal entities engaged in an intragovemmental transaction do not both 
record the same intragovemmental transaction in the same year and for 
the same amount, the intragovemmental transactions will not be in 
agreement, resulting in errors in the consolidated financial statements. 

’®GAO, High-Risk Senes: An Update. GAO-13-283 (Washington, D.O.: Feb. M, 2013), 

"GAO, DOD Financial Management: Challenges in Attaining Audit Readiness and 
Improving Business Processes and Systems, GAO-12-642T (Washington, D.C : Apr 18 

^®The General Fund is a central reporting entity that tracks core activities fundamental to 
funding the federal government (e.g., issued budget authority, operating cash, and debt 
financing activities). 

Page 9 



The Department of the Treasury (Treasury) has grouped 
Intragovernmental activity and balances into the following five categories 
and is working with federal entity personnel to identify and resolve 
reported unreconciled differences. 

• Fiduciary activities include investments in Treasury securities with 
the Bureau of the Fiscal Service (Fiscal Service),^® borrowing from the 
Fiscal Service and the Federal Financing Bank and related interest 
receivable and payable, interest expense and revenue, and federal 
loans receivable and payable. 

• Benefit activities include contributions by federal entities into 
employee benefit programs (retirement, life insurance, workers’ 
compensation, and health benefits) administered by the Office of 
Personnel Management and the Department of Labor. 

• Buy/Seil activities between federal entities include buy and sell costs 
and revenues, accounts receivable and payable, and advances to and 
from others. 

• Transfers of funds include transfers payable and receivable, and 
transfers in and out without reimbursement. 

• General Fund transactions and balances include fund balance with 
Treasury, appropriations received and warrants, and custodial and 
non-entity collections. 

The federal government has made progress in reconciling 
intragovernmental differences and the degree of progress varies by 
category. However, the federal government continues to be unable to 
adequately account for and reconcile intragovernmental activity and 
balances. For fiscal year 2012. amounts reported by federal entity trading 
partners for certain intragovernmental accounts were not in agreement by 
significant amounts. OMB and Treasury require the CFOs of 35 
significant federal entities to reconcile, on a quarterly basis, selected 

^®According to Treasury officials, on October 7, 2012, the Secretary of the Treasury 
(1) established the Bureau of the Fiscal Service as a bureau within the Department of the 
Treasury. (2) consolidaled and redesignated the Bureau of the Public Debt and the 
Financial Management Service as the Bureau of the Fiscal Service, and (3) transferred 
the duties of the Bureau of the Public Debt and Financial Management Service 
commissioriers to the Commissioner of the Bureau of the Fiscal Service. 

Page 10 



intragovernmental activity and balances with their trading partners. As in 
prior years, a substantial number of the entities did not adequately 
perform the required year-end reconciliations for fiscal year 2012. Further, 
there continue to be hundreds of billions of dollars of unreconciled 
differences between the General Fund of the U.S. government and 
federal entity trading partners related to appropriations and other 
intragovernmental transactions. Currently, federal entities report their 
activity with the General Fund; however, the General Fund activity is not 
centrally reported, and therefore, a process does not exist for entities to 
confirm and reconcile all of their activity and balances with the General 
Fund. As a result of these circumstances, the federal government’s ability 
to determine the impact of the unreconciled differences between trading 
partners on the amounts reported in the accrual-based consolidated 
financial statements is significantly impaired. 

Over the years, we have made several recommendations to Treasury to 
address these issues. Treasury has taken or plans to take actions to 
address these recommendations. During fiscal year 2012, Treasury 
expanded its ongoing efforts to help resolve and eliminate material 
differences in intragovernmental activity and balances. These efforts 
included developing and implementing a formalized resolution plan and 
related corrective actions intended to address long-standing 
intragovernmental challenges. As part of Its plan. Treasury monitors 
entities’ reconciliation efforts and compliance with Treasury Financial 
Manual guidance. For example, in fiscal year 2012, Treasury began a 
pilot program with 14 entities that included providing them with quarterly 
metrics and scorecards highlighting differences requiring attention. In 
fiscal year 2013, Treasury expanded the distribution of the quarterly 
metrics and scorecards to include all 35 significant entities. Further, 
Treasury is in the process of establishing separate reporting for the 
General Fund, which includes intragovernmental transactions. Resolving 
the intragovernmental transactions problem remains a difficult challenge 
and will require a strong and sustained commitment by federal entities to 
timely resolve differences with their trading partners, as well as continued 
strong leadership by Treasury and 0MB. 

Preparing the Consolidated Treasury, in coordination with 0MB, implemented corrective actions 

Financial Statements during fiscal year 2012 to address certain internal control deficiencies 

detailed in our previously issued reports regarding the process for 
preparing the consolidated financial statements, including obtaining and 
utilizing certain interim financial information from federal entities in 
preparing initial consolidated financial statement drafts and 
supplementing staff during the financial report preparation process. 

Page 11 



Treasury also began to develop a methodology to reconcile the budget 
deficit to the consolidated financial statements. Nevertheless, the federal 
government continued to have inadequate systems, controls, and 
procedures to ensure that the consolidated financial statements are 
consistent with the underlying audited entity financial statements, properly 
balanced, and In conformity with U.S. GAAP.^^ For example: 

• Treasury's process did not ensure that the information in three of the 
accrual-based consolidated financial statements (Statement of 
Operations and Changes in Net Position, Reconciliations of Net 
Operating Cost and Unified Budget Deficit, and Statement of Changes 
in Cash Balance from Unified Budget and Other Activities) was fully 
consistent with the underiying Information in the 35 significant federal 
entitles’ audited financial statements and other financial data. 

• Treasury is unable to properly balance the accrual-based 
consolidated financial statements. To make the fiscal years 2012 and 
2011 consolidated financial statements balance, Treasury recorded 
net increases of $20.2 billion and $15.6 billion, respectively, to net 
operating cost on the Statement of Operations and Changes in Net 
Position, which were identified as “Unmatched transactions and 
balances."^® Treasury recorded an additional net $1.8 billion and 
$6.0 billion of unmatched transactions in the Statement of Net Cost for 
fiscal years 2012 and 201 1 , respectively. The material weakness in 
federal entities' ability to account for and reconcile intragovernmental 
activity and balances, discussed above, significantly contributes to the 
unmatched transactions and balances and consequently Impairs 
Treasury’s ability to fully eliminate such intragovernmental activity and 

^^Most of the issues we identified in fiscal year 2012 existed in fisca! year 2011, and many 
have existed fora number of years. Most recently, in June 2013, we reported the issues 
we identified to Treasury and 0MB and provided recommendations for corrective action. 
See GAO, Management Report: Improvements Needed in Contmis over the Preparation 
of the U.S. Consolidated Financial Statements, GAO-13-54Q (Washington, D.C.: June 28, 
2013). A detailed discussion of control deficiencies regarding the process for pnsparing the 
consolidated financial statements can be found on pages 239 through 241 of the Financial 

^®Although Treasury was unable to determine how much of the unmatched transactions 
and balances, if any, relates to net operating cost, it reported this amount as a component 
of net operating cost in the consolidated financial statements. 

Page 12 



• Treasury’s reporting of certain financial information required by U.S. 
GAAP continues to be impaired and will remain so until federal 
entitles, such as DOD, can provide Treasury with complete and 
reliable information required to be reported in the consolidated 
financial statements. 

Resolving these internal control deficiencies remains a difficult challenge 
and will require a strong and sustained commitment from Treasury and 
0MB as they continue to execute and implement their corrective action 

Significant Uncertainties 
Result in Disclaimers of 
Opinion on the 2012, 2011, 
and 2010 Statements of 
Social Insurance, as Well 
as on the 2012 and 2011 
Statements of Changes in 
Social Insurance Amounts 

Significant uncertainties, primarily related to the achievement of projected 
reductions in Medicare cost growth reflected in the 2012, 2011, and 2010 
Statements of Social Insurance, prevented us from expressing opinions 
on the 2012, 201 1 , and 2010 Statements of Social Insurance, as well as 
on the 2012 and 201 1 Statements of Changes in Social Insurance 
Amounts.^ The Statement of Social Insurance presents the actuarial 
present value of the federal government’s estimated future revenue to be 
received from or on behalf of participants and estimated future 
expenditures to be paid to or on behalf of participants, based on benefit 
formulas in current law and using a projection period sufficient to illustrate 
the long-term sustainability of the social insurance programs.®® 

These significant uncertainties include the following: 

• Medicare projections in the 2012, 2011, and 2010 Statements of 
Social Insurance were based on benefit formulas In current law and 
included a significant decrease in projected Medicare costs from the 
2009 Statement of Social Insurance related to (1 ) reductions in 
Medicare payment rates for physician services (totaling almost 31 
percent in January 2013, as estimated in the 2012 Medicare Trustees 

About $27,2 trillion, or 70,5 percent, of the federal government’s reported total present 
value of future expenditures in excess of future revenue presented in the 2012 Statement 
of Social Insurance relates to Medicare programs reported in the Departoent of Health 
and Human Services' 2012 Statement of Social Insurance, which received a disclaimer of 

®®The projection period used for the Social Security, Medicare, and Railroad Retirement 
social insurance programs is 75 years. For the Black Lung program, the projections are 
through September 30, 2040. 

Page 13 



Reportf and (2) productivity improvements for most other categories 
of Medicare providers, based on full implementation of the provisions 
of the Patient Protection and Affordable Care Act, as amended 
(PPACA),^^ However, there are significant uncertainties concerning 
the achievennenl of these projected decreases in Medicare costs. 

• As discussed in note 26 in the Financial Report, actual future costs for 
Medicare are likely to exceed those shown by the current-law 
projections presented in the 2012, 201 1 , and 2010 Statements of 
Social Insurance due, for example, to the likelihood of modifications to 
the scheduled reductions in Medicare payment rates for physician 
services. “ The extent to which actual future costs exceed the 
projected current-law amounts due to changes to the scheduled 
reductions in Medicare payment rates for physician services and 
productivity adjustments depends on both the specific changes that 
might be legislated and whether such legislation would include further 
provisions to help offset such costs. 

• The Financial Report includes an illustrative alternative projection that 
is intended to provide additional context regarding the long-term 
sustainability of the Medicare program and to illustrate the 
uncertainties in the Statement of Social Insurance projections. The 
present value of future estimated expenditures in excess of future 
estimated revenue for Medicare, included in the illustrative alternative 
projection, exceeds the $27.2 trillion estimate in the 2012 Statement 
of Social Insurance by $10,1 trillion. 

Projections of Medicare costs are sensitive to assumptions about future 
decisions by policymakers and about the behavioral responses of 
consumers, employers, and health care providers as policy, incentives, 

^^Subsequent to our audit, the 2013 Medicare Trustees Report vras issued on May 31, 

“PPACA, Pub, L. No, 111-148, 124Stat. 119 (Mar. 23.2010), as amended by the Health 
Care and Education Reconciliation Act of 2010, Pub. L. No, 111-152, 124 Stat, 1029 
(Mar. 30, 2010), 

^^Statutes have been enacted with provisions that prevented scheduied reductions in 
Medicare payment rates for physician services from taking effect from 2003 through 2013, 
including the most recent provision enacted in the American Taxpayer Relief Act of 2012 
(ATRA), Pub, L, No. 112-240, § 601, 126 Stat. 2313, 2345 (Jan. 2, 2013). Some of these 
statutes also included provisions that reduced the federal government's spending on other 
categories of health care, which had the effect of helping to offset the increased costs 
related to the physician payment updates. 

Page 14 



and the health care sector change over time. Such secondary Impacts are 
not fully reflected In the Statement of Social Insurance projections but 
could be expected to Influence the excess cost growth rate used in the 
projections.^ Key drivers of uncertainty about the excess cost growth rate 
Include the future development and deployment of medical technology, 
the evolution of personal Income, and the cost and availability of 
insurance, as well as federal policy changes, such as the implementation 
of PPACA. Both the Statement of Social Insurance projections and the 
illustrative alternative estimate summarized in Note 26 in the Financial 
Report indicate that the Social Security and Medicare programs are not 
sustainable under current financing arrangements. 

T nna-Tprm Fi« 5 ral Financial Report includes comprehensive fiscal projections for 

® the U.S. government that, consistent with GAO simulations, show that 

Challenges without changes in current policy, the federal government continues to 

face an unsustainable long-term fiscal path.^® Such reporting provides a 
much needed perspective on the federal government’s long-term fiscal 
position and outlook. The projections included in the Financial Report and 
our simulations both continue to highlight the need to focus attention not 
only on the federal government’s near-term budget outlook but also on its 
longer-term fiscal path. In the near term, deficits are expected to continue 
to decline from the recent historic highs as the economy recovers and 
actions taken by Congress and the President begin to take effect, Debt 
held by the public as a share of gross domestic product (GDP), however, 
remains well above historical averages. Debt held by the public at these 
high levels could limit the federal government’s flexibility to address 
emerging issues and unforeseen challenges such as another economic 
downturn or large-scale natural disaster. 

^The excess cost growth rate is the increase in health care spending per person relative 
to the growth of gross domestic product per person after removing the effects of 
demographic changes on health care spending. 

^®GAO, The Federal Government's Long-Term Fiscal Outlook. Spring 2013 Update. 
GAO-13-481 SP (Washington, D.C.: Apr. 11, 2013), and The Federal Government's Long- 
Term Fiscal Outlook: Fall 2012 Update. GAO-13-148SP (Washington, D C.; Dec, 3, 2012), 
The key difference between these two is that the Spring 2013 update reflects the 
enactment of ATRA, which among other changes, modified the 2013 and 2014 
discretionary spending limits, permanently extended many of the tax provisions that were 
previously set to expire under current law and limited the reach of the Alternative Minimum 
Tax. The overall effects of ATRA on the longer-term outlook under GAO’s alternative 
simulation are relatively small. 

Page 15 



Both the projections in the Financial Report and our long-term simulations 
reflect enactment of the Budget Control Act of 2011 (BCA).^® BCA set 
limits on discretionary spending for fiscal years 2012 through 2021. Under 
the enacted discretionary spending limits, discretionary spending as a 
share of the economy In 2021 would be lower than any level seen in the 
last 50 years. Even with the reductions from BCA, the government 
continues to face a significant structural imbalance between revenues 
and spending, driven on the spending side largely by the aging of the 
population and rising health care costs. Changing this path will not be 
easy, and it will likely require difficult decisions affecting both federal 
spending and revenue. Significant action to change the long-term path 
must be taken soon to minimize the risk that eventual policy changes will 
be disruptive to individuals and the economy, while also taking into 
account concerns about near-term economic growth. 

The Executive Branch 
Needs to More Fully 
Implement the GPRA 
Modernization Act to 
Address Pressing 

As we reported in June 2013, the executive branch has taken a number 
of steps to implement key provisions of the GPRA Modernization Act of 
2010 (the act). OMB has developed interim cross-agency priority goals, 
and agencies developed agency-specific priority goals. Agency officials 
reported that their agencies have assigned performance management 
leadership roles and responsibilities to officials, such as performance 
Improvement officers, who generally participate in performance 
management activities, including data-driven quarterly performance 
reviews. Further. OMB developed, a government-wide 
website, which provides quarterly updates on the cross-agency priority 
goals and agency priority goals, The Performance improvement Council, 
which consists of agency performance Improvement officers, has also 
taken steps to facilitate the exchange of useful practices and tips and 
tools to strengthen agency performance management. Nevertheless, our 
work has shown that the executive branch needs to do more to fully 
implement and leverage the act's provisions to address governance 

^he Budget Control Act of 2011, Pub. L. No. 112-25, §302, 125 Slat 240, 256-59 
(Aug. 2, 2011), classified, asamended, in2 U.S.C. § 901a. 


Page 16 



0MB and Agencies Have 
Made Some Progress 
Addressing Crosscutting 
Issues but Are Missing 
Additional Opportunities 

Many of the meaningful results that the federal government seeks to 
achieve, such as those related to protecting food and agriculture and 
providing homeland security, require the coordinated efforts of more than 
one federal agency, level of government, or sector. For almost two 
decades we have reported on agencies’ missed opportunities for 
improved collaboration through the effective implementation of GPRA. 
Under the act, 0MB and agencies have identified many programs and 
activities that contribute to goals, as required, but our recent work 
continues to show that they are missing additional opportunities to 
address crosscutting issues. While agencies have implemented some of 
the act's provisions, their efforts have not included ail of the relevant 
agency, program, and other contributors. For example, few have 
Identified tax expenditures, which represent about $1 trillion in foregone 
revenue in fiscal year 2012, due to a lack of 0MB guidance and 
oversight. Therefore, the contributions made by tax expenditures toward 
broader federal outcomes are unknown. In June 2013, we recommended 
that OMB take several actions to ensure that the contributions of tax 
expenditures to crosscutting and agency goals are identified and 
assessed.® OMB staff agreed with these recommendations. 

in addition, agencies are not consistently including all relevant 
stakeholders as they Implement key provisions of the act in the following 

t Cross-agency priority goals: in May 2012, we identified additional 
agencies that should be named as contributors for 10 of the 14 interim 
cross-agency priority goals.® 

• Agency priority goals; In April 2013, we found that agencies 

Identified contributors within the agency for each agency priority goal, 
but did not identify external contributors for 29 of the 102 agency 
priority goals we reviewed. In some cases, the goals seem to be 
internally focused, but in other cases, our work has shown that there 
are external contributors that were not listed.® 


®GAO. Managing for Results: GAO'S Work Related to the Interim Crosscutting Priority 
Goals under the GPRA Modernization Act, GAO-12-620R (Washington, D.C,: May 31, 
2012 ). 

®GAO, Managing for Results: Agencies Should More Fully Develop Priority Goals under 
the GPRA Modernization Act, GAO-13-174 (Washington, D.C,: Apr 19, 2013). 

Page 17 



• Quarterly performance reviews: In February 2013, we reported that 
while we found that quarterly performance reviews have shown 
promise in improving internal agency coordination and collaboration, 
few agency performance improvement officers reported that they were 
using the reviews to coordinate or collaborate with other agencies that 
have similar goals.'*^ 

We made recommendations to the Director of 0MB to address each of 
these areas. OMB staff agreed with these recommendations. 

Ensuring Performance 
Information Is Useful and 
Used by Managers to 
Improve Results Remains a 
Weakness, but Key 
Performance Management 
Practices Hold Promise 

As we reported in June 2013, we found little Improvement in federal 
managers’ reported use of performance information or practices that 
could help promote its use, based on our periodic government-wide 
surveys of federal managers since 1997, in particular, as figure 1 
illustrates, the results from our 201 3 managers survey show almost no 
statistically significant changes in managers' perceptions of their leaders’ 
and supervisors’ attention and commitment to use of performance 
information since our last survey in 2007 — ^with the exception of a decline 
in the percentage of managers who agreed to a great or very great extent 
that their agencies’ top leadership demonstrates a strong commitment to 
achieving results. 

'’^GAO. Managing for Results: Data-Driven Performance Reviews Show Promise But 
Agencies Should Explore How to Involve Other Relevant Agencies, GAO-1 3-228 
(Washington. D C.: Feb 27. 2013). 

Page 18 



Figure 1 : Less Than Two-Thirds of Federal Managers Agreed In 2013 to a "Great” or 
“Very Great” Extent with Statements about Leadership and Supervisor Commitment 
and Attention to Performance information 

My ag«ncy% top leadership 
demonstrates a strong 
commibnent to achieving 

My agency's top leadership 
demonstrates a strong 
commitment to using 
performance information to 
guide decision making'^ 

The individual I report to pays 
attention to performance 
information in decision makingti 

The Individual < report to 
periodically reviews n^th me the 
resulls or outcomes of my 

0 to 20 30 40 50 80 70 


80 100 

Og 1997 

Source GAO. 

Notes: Percentage estimates for 2013 and 2007 have 95 percent confidence inten/als within +/-4 
percentage points of the estimate, and j»rcentage estimates for 1 997 have confidence inte vals 
within percentage points of the estimate. 

Some survey items were abbreviated. For the full text, see items lOg, lOh, 11a, and 12c in 

‘Statisticaity signiHcant decrease between 2007 and 2013. 

‘’Survey item was introduced in 2007. 

‘StaiisticaHy significant increase between 1997 and 2013. 

Importantly, agencies’ quarterly performance reviews show promise as a 
leadership strategy for improving the use of performance Information in 
agencies. According to our 2012 survey of performance improvement 
officers at 24 agencies, the majority (21 out of 24 agencies required to 

Page 19 



conduct these reviews) reported that actionable opportunities for 
performance improvement are identified through the reviews at least half 
the time.® In addition, most officials we Interviewed at the Department of 
Energy, the Department of the T reasury , and the Small Business 
Administration attributed improvements in performance and decision 
making to their performance reviews. 

Building the capacity to use performance information is also critical to 
helping ensure that information is used in a meaningful fashion, and 
inadequate staff expertise, among other factors, can hinder agencies' 
use. Only about a third (36 percent) of federal managers reported in our 
2013 survey that they agreed to a great or very great extent that their 
agencies have sufficient analytical tools for managers at their levels to 
collect, analyze, and use performance information. The act lays out 
specific requirements for the Office of Personnel Management (0PM) to 
identify skills and competencies for performance management functions, 
among other actions. 0PM has identified competencies and relevant 
position classifications and taken steps to work with agencies to 
incorporate the key competencies Into agency training. However, we 
reported in April 201 3 that these efforts have been broad-based and not 
Informed by specific assessments of agency training needs.® We 
recommended that the Director of 0PM work with the Performance 
Improvement Council to identify competency gaps for agency 
performance management staff and use this information to identify and 
share relevant agency training. 0PM agreed with these 

Our 2013 government-wide survey found that most managers also lack 
recent program evaluation studies— a particular form of performance 
information — ^that can identify ways to improve program efficiency and 
effectiveness." Only 37 percent of managers reported that an evaluation 
had been completed in the past 5 years of any program or operation they 

®GAO-13-366 and GAO-13-228. 


"GAO. Program Evaluation: Strategies to Facilitate Agencies' Use of Evaluation in 
Program Management and Policy Making, GAO-1 3-570 (Washington, D.C,; June 26, 
2013), Program evaluations are systematic studies that use research methods to assess 
the achievement of a programs objectives in context, to explore the reasons for observed 
results and isotale program effects from other influences. 

Page 20 



were involved in. Yet, 81 percent of the managers who had evaluations 
reported that evaluations contributed to a moderate or greater extent to 
implementing changes to improve program management or performance. 

As you know, we have issued three reports outlining numerous areas of 
potential fragmentation, overlap and duplication in federal programs.® 
Comprehensive program evaiuations that examine the coverage and 
effectiveness of a cluster of federal programs and policies aimed at 
achieving similar outcomes could be key in coordinating and streamlining 
programs so as to reduce duplication and overlap. In case study 
interviews, agency evaluators emphasized three basic strategies to 
facilitate evaluation influence on program management and policy 
making: (1) demonstrate leadership support by promoting the use of 
evidence and funding evaluation offices to promote and support the use 
of evidence; (2) build a strong body of evidence by attending to rigor in 
whatever methods are used; and (3) engage stakeholders throughout the 
evaluation process— gaining their input to planning; providing assistance, 
training, and incentives; and disseminating usable messages. 

Agencies Have Taken 
Steps to Align Daily 
Operations with Agency 
Results but Continue to 
Face Difficulties 
Measuring Performance 

Agencies have established performance management systems to align 
individual performance with agency results. However, agencies continue 
to face long-standing issues with measuring performance, such as 
obtaining complete, timely, and accurate performance information, across 
various programs and activities. Given the Performance Improvement 
Council’s responsibilities for addressing crosscutting performance issues 
and sharing performance improvement practices, our June 2013 report 
noted that it could do more to examine and address the difficulties 
agencies face to measuring performance across various program types, 

^^GAO, 2013 Annual Report: Actions Needed to Reduce Fragmentation. Overlap, and 
Duplication and Achieve Other Financial Benefits, GAO-1 3-279SP (Washington, D.C.: 
Apr. 9, 2013); 2012 Annual Report: Opportunities to Reduce Duplication, Overlap and 
Fragmentation, Achieve Savings, and Enhance Revenue, GAO-12-342SP (Washington 
D.C.: Feb, 28. 2012); and Opportunities to Reduce Potential Duplication in Government 
Programs. Save Tax Dollars, and Enhance Revenue. GAO-11 -318SP (Washington, D.C. 
Mar. 1, 2011). 

Page 21 



such as grants and contracts.* "' We recommended that OMB work with 
the Performance Improvement Council to develop a detailed approach for 
addressing these long-standing performance measurement issues. OMB 
staff agreed with this recommendation. 

Communication of 
Performance Information 
Could Better Meet Users’ 

Federal managers and potential users of reported 
concerns about the accessibility, availability, understandability, and 
relevance of performance infomiation to the public. Potential users 
include Members and committees of Congress and the public. In our June 
2013 report reviewing, we noted that the website has 
the potential to increase the accessibility of performance information for 
users both inside and outside the federal government.* However, further 
outreach to key stakeholders could help improve how this information is 
communicated. We recommended in June 201 3 that OMB work with the 
Performance Improvement Council and the General Services 
Administration, which are involved in the development of the website, to 
(1) clarify the specific ways that intended audiences could use the 
information on and (2) systematically collect information 
on the needs of intended audiences and collect recommended 
performance metrics that help identify improvements to the website. OMB 
staff agreed with these recommendations. 

Agency Performance 
Information Is Not Always 
Useful for Congressional 
Decision Making 

Our work has found that the performance information that agencies 
provided to the Congress was not always useful for congressional 
decision making because the information was not clear, directly relevant, 
or sufficiently detailed. Consultations with Congress are intended, in part, 
to ensure that performance information is useful for congressional 
decision making. OMB and agencies are to consult with relevant 
committees. Including this committee, about proposed goals at least once 
every 2 years. Specifically. OMB is to consult about the cross-agency 


also recommended in April 201 3 that the Director of OMB work with the 
Performance Improvement Council to gather regular feedback from its members on its 
perfonnance and update its strategic plan, as appropriate. OMB staff agreed with these 
recommendations; see GAO-13-356. 

^®GAO, Managing for Results: Leading Practices Should Guide the Continued 
Devetopment of, GAO-13-517 (Washington, D C.: June 6, 2013). 

Page 22 



priority goals and describe on how congressional input 
was incorporated into these goals. Similarly, agencies are to consult 
about their strategic plans, including agency priority goals, and describe 
in these plans or on, respectively, how that input was 
incorporated. However, in April 2013 we found little evidence that 
meaningful consultations occurred related to agency strategic plans and 
agency priority goals." We recommended that the Director of 0MB 
ensure that agencies provide a description of how input from 
congressional consultations was incorporated into each priority goal. 

0MB staff concurred with our recommendation. 

In February 2014, OMB and agencies will publish a new set of cross- 
agency priority goals, agency priority goals, and updated agency strategic 
plans. According to OMB guidance, agency consultations with Congress, 
including this committee, on updated strategic plans and agency priority 
goals should take place this summer. Similarly, OMB has stated plans to 
consult with this committee and other committees with broad jurisdiction 
on the next set of cross-agency priority goals prior to their publication. At 
the request of Congress, we developed a guide in June 2012 to assist 
Members of Congress and their staffs in ensuring that the consultations 
required under the act are useful for assessing agency performance.™ 
The guide outlines general approaches for successful consultations and 
key questions that Members of Congress and congressional staffs can 
ask as part of the consultation process. 

ClOSinS ConrniBntS closing, while progress has been made, much work remains given the 

® federal government’s long-term fiscal, financial management, and 

performance management challenges. Congress, the administration, and 
federal managers need to have more reliable, useful, and timely financial 
and performance information to effectively meet these challenges, to 
make sound decisions, and to operate as efficiently and effectively as 
possible. Agencies must continue to strive toward routinely producing 
such information to help guide decision makers on a day-to-day basis. 
Federal entities' improvement of financial management systems will be 


™GAO, Managing for Results: A Guide for Using the GPRA Modernization Act to Help 
Inform Congressional Decision Making, GAO-12-621SP (Washington, O.C,: June 15 
2012 ). 

Page 23 



essential to achieve this goal for their agency and the government as a 

Meaningful improvement in financial and performance management will 
not occur without sustained commitment by executive branch leaders and 
managers and continued oversight by Congress. The single most 
important element of successful financial and performance management 
improvement efforts is the demonstrated commitment of top leaders. This 
commitment is most prominently shown through the personal involvement 
of leaders, especially with agency data-driven performance reviews. 
Demonstrating leadership support for accountability and Improvement by 
promoting capacity building and the use of evidence is also essential in 
helping facilitate program evaluation use in agency program management 
and policy making. Similarly, Congress can play a decisive role in 
fostering results-oriented cultures in the federal government by using 
information on agency goals and asking for and using financial and 
performance information as it carries out its various responsibilities. 

Chairman Issa, Ranking Member Cummings, and Members of the 
Committee, this concludes my prepared statement. I would be pleased to 
respond to any questions that you may have at this time. 

P AO PnntartR further information regarding this testimony, please contact Robert F, 

a, ( 202 ) 512-3406 or daceyr@gao,gov; Gary T. 
Engel, Director, Financial Management and Assurance, at (202) 512- 
3406 or; or J. Christopher Mihm, Managing Director, 
Strategic Issues, at (202) 512-6806 or Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this statement. 

Page 24 



Appendix I: Chief Financial Officers (CFO) 
Act Agencies: Fiscal Year 2012 Audit Results 
and Principal Auditors 

CFO Act agencies 

Opinion expressed 
by agency auditor 

Agency auditor-ieported 
material weaknesses or 

Principal auditor 

Agency for International Development 


Office of Inspector Genera! (OIG) 
















Ernst & Young LLP 




Environmental Protection Agency 




General Services Administration 




Health and Human Services 


Ernst & Young LLP 

Homeland Security 




Housing and Urban Development 














National Aeronautics and Space 


PricewaterhouseCoopers LLP 

National Science Foundation 


CliftonLarsonAilen LLP 

Nuclear Regulatory Commission 


CliftonLarsonAlien LLP 

Office of Personnel Management 



Small Business Administration 




Social Security Administration 



Grant Ttiornton LLP 




Kearney & Company 







Veterans Affairs 



CliftonLarsonAilen LLP 

Source GAO 

"Reported noncompliance with applicable laws and regulations and/or substantial noncompliance with 
one or more of the Federal Financial Management Improvement Act requirements. 

*The auditors of the U.S. Agency for international Development's {AID) fiscal year 2012 financial 
statements issued a qualiried opinion because of the effects of a number of unsupported adjustments 
on AID'S financial statements 

'The auditors expressed an unqualified opinion on the Department of Health and Human Services' 
fiscal year 2012 accrual-based financial statements, but were unable to express opinions on the 
department’s 2012 Statement of Social Insurance and 2012 Statement of Changes in Social 
insurance Amounts. 

*rhe auditors of the E)epartmenl of Homeland Security's (DHS) fiscal year 201 2 financial statements 
issued a quali^d (^mion because of OHS's inability to provide sufficient evidence to support certain 
components of property, plant, and equipment and heritage and stewardship assets presented in the 
finandal statements and notes. 


Page 2S 



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Chairman ISSA. Thank you. 

I will recognize myself for a series of questions. In your prepared 
statement, one of the things, and in the briefing that we received 
before this hearing, one of the things that you note is that when 
government does business with government. Federal Government 
agency to agency, something that we want to encourage in a num- 
ber of ways. 

They actually do a very poor job of tracking that. This committee 
has passed previously the Data Act. It died in the Senate. Our be- 
lief is that it died in the Senate mostly because it pushed back on 
recipient reporting, that recipients of grants didn’t really want to 
be held accountable. But those were, and maybe that is not com- 
pletely unfair, they complained it was burdensome. But clearly, 
that was one of the areas that we have continued to work on to 
try to make it more acceptable. 

But had the Data Act been passed with government systems 
being required to have meaningful meta data, so that in fact there 
is a transparency, would that have improved this government to 
government accounting? 

Mr. Dodaro. Having data standards that are included in the 
Data Act and regular reporting would have been very beneficial to 
addressing these issues. That information then can be, and should 
be, tied to the financial systems and the agencies and having more 
rigor in place. I am very supportive of the Data Act that has been 
put forward. I commend the committee for its role in that area. I 
think without legislation, it won’t happen. And I think that is very 
important, and would be helpful in addressing these issues. 

Chairman IsSA. I might note for the record that a previous 0MB 
director now in a new job is beginning to see the benefit of that 
information differently than when it was his task to do it without 

You mentioned the deficiencies in the government-wide website. 
Is part of that deficiency, in fact, that without meaningful struc- 
tured data you are really not producing rich data in an automated 
way, but rather posting to the website as though it was an adver- 
tisement? I am not trying to belittle it, but isn’t that a certain 
amount of what that website is, is manually grabbed information 
posted to try to make people aware of what is going on? 

Mr. Dodaro. The website, if you look at it, there is a lot of infor- 
mation on it, but it is hard to find exactly what you need. And it 
is not as searchable, for example, as the website. I 
think more effort needs to be put into making sure people under- 
stand how the public. Congress and other people want to use the 
information. It is not very user-friendly. 

Chairman IsSA. Let me ask you a question, and you may have 
to go to one of your assistants. When we are looking at the 21st 
century, the word website versus data mineable data base available 
to the public, isn’t there a huge difference in which a website is 
fine for a novice to go search and hopefully find the form they need 
or the information they need? Well, if we were to mandate truly 
data mineable bases, then companies and innovators who want to 
create these Apple apps and so on could in fact mine that data, 
that public data, and make it available in very easy format at no 
cost to the government? 


Mr. Dodaro. Exactly. I think there is great opportunity to make 
government data available to enhance the ability of people, re- 
searchers, companies and others, the public, to use that informa- 
tion. But the one thing we pointed out, whether we are looking at, the Data Act or,, is the 
quality of the information and the reliability and accuracy of the 
data. That I think is paramount. That always isn’t really assured, 
Mr. Chairman. I think that is a real limitation. 

We can make a lot of data available. But if it is not reliable and 
it is not accurate, it is not as helpful as possible. 

Chairman ISSA. We are trying to look for examples that do work. 
Would one of those examples perhaps be where the FAA opened up 
the core data of where aircraft are within the system, so that peo- 
ple could track their incoming flight with apps that were made 
available after the fact? That is my understanding, is both weather 
and FAA are examples of data that has become available for inde- 
pendent development. 

Mr. Dodaro. I would have to get back to you. 

Chairman IssA. I would appreciate if you would do that for the 
record. I would like to the greatest extent possible for the public 
to understand, and we will create a link to some of those examples, 
if we can work with your staff. 

Now, you mentioned food safety. This is the committee of over- 
sight, but it is also the committee of reform. Some years ago, the 
President noted that food was controlled by multiple agencies in 
rather obtuse ways. If I remember right, his examples were, where 
salmon were swimming affected where they were under their con- 
trol. And then of course, that was live. Then when you get into var- 
ious foods and food groups, you could be at the FDA, Department 
of Agriculture, a number of others. 

Should this committee consider consolidated food safety a re- 
organizational plan that would make food a single point of account- 
ability, whether or not it leveraged existing agencies, so that the 
American people could see food safety as a single point of account- 

Mr. Dodaro. Yes. 

Chairman IsSA. Thank you. 

I love a great witness. For all of you here today, that is an exam- 
ple of a really great witness. 


Chairman IsSA. My time is expiring. I mentioned in my opening 
statement the challenge of data accountability under the Affordable 
Care Act. I know that that is not the primary concern of this hear- 
ing. But for the GAO, is this not by definition next year’s high risk, 
the fact that in 70 days, we theoretically will implement the Afford- 
able Care Act, and at that point, this IRS data and a confluence 
of other information to exchanges not even yet up and running, and 
in some cases not defined, will become law? 

Mr. Dodaro. That is an area we are definitely going to focus on. 
I have been concerned. In fact, we have computer security as a gov- 
ernment-wide high risk area. And we have focused on that for a 
time. We have looked at the exchanges. Some of them are going to 
have difficulties making sure they are established on time, which 


leads you to believe they may be taking shortcuts to be able to get 
up and running on time. 

So I think it definitely has all the characteristics of a potential 
high risk situation. 

Chairman ISSA. Thank you. My time is expired. I recognize the 
ranking member. 

Mr. Cummings. Thank you very much. 

I just want to follow up on what the chairman was just asking 
Mr. Dodaro. Tell me what form, tell me how that has come about 
that you are looking at the Affordable Care Act. Tell me what form 
that is taking. Do you follow me? I just want to know how that 
course of action started and what you are looking at. 

Mr. Dodaro. Right. We have been asked to look at a number of 
areas on implementation of the Affordable Care Act. For example, 
we were asked by the Congress to look at the status of exchanges 
that were set up either by the States who were going to run the 
exchanges, or the Federal Government’s actions to set up ex- 
changes for that, both for the general public, also for small busi- 
nesses as well. We have issued a series of reports on those areas. 

We have looked at some of the initial implementation issues at 
the IRS, and I would ask Mr. Mihm to come up and explain a little 
bit about what we are doing there. But we are going to be doing 
a little bit more work on this in the future. 

Mr. Cummings. Mr. Mihm, would you tell us what kind of guid- 
ance, if any, you are giving to any agencies with regard to the Af- 
fordable Care Act? 

Mr. Mihm. Yes, sir. The primary areas that we have been focused 
on in regards to IRS has been the extent to which they have been 
using a disciplined approach to risk management in understanding 
the risks that they face in order to implement their responsibilities 
under the Affordable Care Act, whether or not they have identified 
those risks, have risk mitigation plans in place, the right set of 
leadership structure on that. We made a series of recommendations 
to them about how they needed to strengthen that, and in par- 
ticular how they needed to work better with HHS. 

Now, this was a year and a half, two years ago. We need to fol- 
low up on that work again and go back and make sure that the 
recommendations that we had have been effectively implemented. 
But the last time that we looked, which would be about six months 
ago that they were making progress in those areas of under- 
standing at least how they needed to manage risk in that regard. 

Mr. Cummings. And so when do you all plan to follow up to see 
whether they have been implementing those things? In other 
words, the status of your suggestions or recommendations? 

Mr. Mihm. We have routine requirements in GAO that we have 
to follow up periodically on them. Obviously, given the interest of 
this committee we will make sure that it is the very highest pri- 

Mr. Cummings. Very well. 

Mr. Dodaro. We have had, Mr. Chairman, if I might elaborate 
a little bit further, we had a number of mandates in the actual Pa- 
tient Protection and Affordable Care Act for us to do certain work. 
I would be happy to provide a complete listing to this committee 


of the work that we have done so far, and what our plans are going 

Mr. Cummings. I would appreciate that. 

Now, Mr. Dodaro, as your report notes, the Defense Department 
is responsible for more than half of the government’s discretionary 
spending, but it has never been able to produce a reliable financial 
statement. Twenty years ago, in 1993, GAO issued a report with 
the following conclusion: “In our opinion, efforts to address defi- 
ciencies and improve financial management have been slow with 

Four years later, in 1997, GAO issued a similar report that said 
this: “Longstanding serious weaknesses in the Department’s finan- 
cial operations continue not only to severely limit the reliability of 
DOD’s financial information, but also have resulted in wasted re- 
sources and undermined the Department’s ability to carry out its 
stewardship and responsibilities.” 

Another four years later, in 2001, GAO examined DOD’s plan for 
reliable financial statements and said this: “This plan presents the 
military services and DOD’s components stovepiped approaches to 
information and financial management and does not clearly articu- 
late how these various efforts will collectively result in an inte- 
grated DOD-wide financial management system.” 

Yet another four years later, in 2005, GAO said this: “To date, 
tangible evidence of improvement has been seen in a few specific 
areas. DOD is still in the very early stages of a department-wide 
reform that will take years to accomplish.” 

You see the pattern. 

Mr. Dodaro. I have seen it first-hand. 

Mr. Cummings. Yes. Here we are in 2013, and you are still tell- 
ing us again the DOD still cannot get a clean audit. Why is that? 
I kind of think the American people would be shocked that we can’t 
get that done. What seems to be the problem? Is it a matter of will? 
Is it too big to account for? What is it? 

Mr. Dodaro. There are several different factors that we have ob- 
served. We have had it on our high risk list since 1995, DOD finan- 
cial management. 

Mr. Cummings. So it is getting ready to reach its 20th anniver- 

Mr. Dodaro. Yes. There are a couple of issues. One, they oper- 
ated for many years, and decades, without a requirement to 
produce audited financial statements. The first requirement that 
was ever in effect was for fiscal year 1996, across the Federal Gov- 
ernment. So they operated many years, so their systems were de- 
veloped and still are in existence that aren’t able to communicate 
with one another, they don’t have common data standards across 
the department, et cetera. So you have a huge enterprise that has 
operated without fiscal discipline for many, many years. 

Secondly, right after the Act was passed, I don’t think that their 
commitment was anywhere near as strong as it was today. I think 
the Congress has become increasingly concerned, and now has 
mandated that they be auditable by 2017, and their statement of 
budgetary resources by 2014. So Congress has gotten more in- 
volved, but it needs to stay more involved in these efforts. They fi- 
nally have a good plan, they are focusing on budget data right now. 


I think originally the department managers didn’t believe they 
needed audited financial data in order to carry out their respon- 
sibilities. So right now, they have focused on budget information, 
which everybody agrees they need and should have, and the exist- 
ence and completeness of assets, which they need to carry out their 

So I am hopeful this will produce the results. But they have very 
serious problems. And it is not going to happen overnight. It won’t 
happen without continued focus. 

Mr. Cummings. To the chairman’s credit, and to the credit of this 
committee, we have constantly tried to concentrate on efficiency 
and effectiveness. I am just trying to figure out, how bad a problem 
is it? In other words, is it such a crucial issue that we may be los- 
ing billions of dollars and not even know it? 

Mr. Dodaro. Yes. It is a very serious problem. I think it under- 
mines not only accountability, but the ability to operate efficiently 
and effectively. There is reportedly about a third of the Federal 
Government’s assets that are at the Department of Defense. 

Mr. Cummings. So if we were to accomplish anything that would 
be a part of our legacy of being in Congress, if we got that done, 
that would be major? 

Mr. Dodaro. Exactly. I am trying to do my part to get it done 
before my tenure ends. I think it is one of the most important 
things that we could collectively do. 

Mr. Cummings. Thank you very much, Mr. Chairman. 

Chairman IssA. For the record. Gene, you have what, over eight 
years left? 

Mr. Dodaro. I have twelve. Twelve and change. 

Chairman IsSA. It is not that optimistic. 

Mr. Dodaro. I know. I know. But I am being realistic, given the 
track record. I said before, I didn’t say at the very end. 


Chairman IssA. Well before, we would like to hear. 

But for the record, the ranking member did repeatedly say that 
the Department of Defense is the largest discretionary. But actu- 
ally, isn’t it true, it is the third largest spender compared to Health 
and Human Services and Social Security? If you compare Medicare 
and Medicaid, obviously that is larger. 

And the question I want to make sure gets on the record, didn’t 
Health and Human Services and Social Security, to a certain ex- 
tent, get qualified or unqualified audits, even though they had 
some major gaps? 

Mr. Dodaro. They received an unqualified audit on their finan- 
cial statements. There is a separate financial statement for social 

Chairman IsSA. And they flunked big time? 

Mr. Dodaro. That we did not give an opinion on. 

Chairman IssA. Great. 

Mr. Dodaro. The uncertainty of achieving the cost estimates 
that are expected in the Affordable Care Act, the trustees pointed 
out the uncertainties, CMS actuary pointed it out, the auditors for 
HHS pointed it out. So it wasn’t just us. And there are a lot of un- 
certainties there. 


Chairman ISSA. Thank you. And I thank the ranking member. It 
is one of those areas in which we know we have to work on DOD, 
we also know we have to work on the entitlement oversight. 

Mr. Mica? 

Mr. Mica. Thank you. Welcome back, Mr. Comptroller. 

Your report indicates that only a little over a third of the Federal 
managers have actually conducted performance evaluation of their 
programs. I think 37 percent, is that correct? 

Mr. Dodaro. That is correct. And that was in any one of their 
programs over a five-year period. 

Mr. Mica. Well, from my perspective, having been here a while, 
you see these agencies, government in general, spinning out of con- 
trol, not getting a decent evaluation of their performance or even 
their agency being auditable. We really can’t perform an audit of 
the Federal Government or most of its agencies, isn’t that also cor- 

Mr. Dodaro. Most of the agencies can now get an unqualified 
opinion. But the big ones, DOD and DHS, cannot. 

Mr. Mica. The worst, you say, is DOD, one of the worst. I think 
the chairman referred to others that have spun out of control. The 
problem you have, though, is you don’t get these agencies to re- 
spond. I have passed specific provisions, I know some at least three 
times since 2002, to get certain things done, and perform. And the 
agencies ignore law. 

Now, we do have you, we have inspector generals, and 0MB. It 
appears to me that we have to tie performance into some penalty 
or some reward. I am wondering if we should give 0MB or some- 
one, Congress obviously can’t do it or doesn’t do it. We are hit and 
miss. We get our appropriations done, this committee actually is 
the one who is evaluating some of that performance, because we 
are conducting continual oversight. But you have those that au- 
thorize programs, and then fund them. 

So I am wondering if 0MB might be the agency, or if you had 
any suggestions as to who you could get to wield a hammer and 
I guess withholding funds. They don’t seem to, we call them in and 
they ignore you, you just don’t get the attention. 

It is surprising, too, with the military, usually the military works 
on commands, and they are usually one of the most responsive. But 
again, we are not getting their attention. Any ideas on having 
0MB being able to withhold funds or some penalty? 

Mr. Dodaro. I think 0MB would be a good place to start, along 
with the Congress, particularly the appropriation committees. 

What I think is fundamentally broken is the incentive. Right 
now, if you want to stop a Federal program or you want to curtail 
it, the onus is on those that come up with evidence to do it. There 
is no evidence-based approach to this. In other words, a program 
should have to demonstrate their having a positive effect in order 
to get continued funding. 

Mr. Mica. Yes, that is sort of a self-evaluation, too. It is not an 
evaluation in comparison to how a task or responsibility could be 
accomplished by some other means, either the private sector or by 
some more efficient method. 


It is my guess that we have probably done overpayments in the 
billions, multi-billion dollar area because of this. Would that be a 
correct assumption? 

Mr. Dodaro. Yes, well, we point out the improper payments as 
the material weaknesses across the Federal Government. There are 
four agencies with ten programs that still aren’t performing. 

Mr. Mica. We are looking at a multi-billion dollar 

Mr. Dodaro. Well, the latest estimate was $107.7 billion in im- 
proper payments for fiscal year 2012. That is not complete, not ev- 
erybody has reported. So it is a huge problem. 

Mr. Mica. It is an astounding number. And again, we have no 
means of bringing these agencies under control. Again, we haul 
them in, we question them, we put caveats and report language 
into appropriations language. You modify authorization and still 
things don’t get done. 

So I think we have to look at some hammer and maybe giving 
0MB some ability to withhold funds. That does get people’s atten- 
tion. They know they can mess around with Congress, because half 
the time we are doing CRs, and you get sort of a general, the last 
five or six years, you just get a general appropriation. They don’t 
pay much attention to us. But someone has to gain control of bu- 
reaucracy that has spun out of control. 

Mr. Dodaro. One other suggestion I have, the Government Per- 
formance Results and Modernization Act of 2010 requires 0MB 
now to list programs that aren’t effective. 

Mr. Mica. Listing is nice, but I think we need to give them some 
teeth to bite. 

Mr. Dodaro. Well, I agree, but I think it is a platform for this 
committee to then hold hearings and have them determine why 
other programs, where we have some evidence of not being effec- 
tive, aren’t on the list. But I agree with your fundamental issue. 
I am just saying there is another avenue. 

Mr. Mica. Thank you. 

Mr. Lankford. [Presiding] Thank you. Mr. Lynch? 

Mr. Lynch. Thank you, Mr. Chairman. 

And to Mr. Dodaro, good to see you again. I certainly appreciate 
the work you are doing. We have had a chance to work together 
in the past, and I think you are doing the right thing at GAO. I 
appreciate the work of your staff as well. 

IJnfortunately, in this committee sometimes, and in Congress 
generally, the degree of oversight that we conduct as a Congress 
is dependent on blameworthiness. In other words, we lurch from 
scandal to scandal and it is the same when the Republicans are in 
the majority versus the Democrats, we would both hear the same 
thing. We seize upon issues to conduct oversight based on our abil- 
ity to embarrass the other side, or if there is a President of the 
other party in office, then the party that has control of this com- 
mittee generally goes after issues that can put that Administration 
in a bad light. 

And so that leads me to a great concern on this issue. Because 
this has been so widely fumbled over Administrations for a long, 
long time, our ability to get this data correct and then make it 
transparent so that we can exercise meaningful government over- 
sight is greatly, greatly inhibited. So I am worried, because there 


is no blameworthiness here that we up here won’t focus on this at 
all, that we will have this hearing and we will go look for some 
other issues that will get us headlines where this work is really 
meaningful and it will, if we get it right, it will greatly help us on 
a lot of issues across the board. 

I am greatly disappointed, still, over our inability to get DOD to 
get their act together. It is a huge amount of our resources going 
to the Defense Department. And it boggles the mind that the NSA 
can tell me how many times Aunt Margaret calls Aunt Matilda, yet 
I can’t get a verifiable audit from the Defense Department on how 
much money they are spending. It just blows my mind. 

I actually think that sometimes the complexity and the pushback 
that we get from DOD is purposeful. They don’t want us to be able 
to track what they are spending. I know now in this age of seques- 
tration that they are sort of changing their attitude a little bit and 
coming up with some new ideas. But I would just ask you to stay 
on that piece, because that is a black hole right now. We cannot 
figure out what they are spending. 

It is as important to them that we get that information as it is 
to the American people and to the taxpayer. Because if we assume 
that they are still getting barrels of money, we are going to cut. We 
are going to keep cutting and cutting and cutting, and we won’t 
know when we get to the bone with the Defense Department if we 
continue to operate in this way. We have a sense that they are 
spending a lot of money and we will just keep cutting. You see that 
on the votes of the House, more and more members are willing to 
cut the Defense Department, because there is this unverifiable 
sense that they have huge resources there. If we continue to cut 
away, I think at some point we do get to the bone. 

But what I want to ask you is about government oversight. We 
have a core responsibility here in Congress to make sure that we 
conduct meaningful oversight of executive operations in the bills 
that we pass on a regular basis. And during the sequestration, we 
are getting a lot of pushback, members on this committee trying to 
do oversight, whether it is drug interdiction coming out of Colom- 
bia, whether it is what is going on in Afghanistan, what is going 
on in Syria, Lebanon. Our ability to conduct oversight is being de- 
nied because of sequestration. I just want you to talk a little bit 
about the importance of Congress fulfilling their constitutional re- 
sponsibility to conduct meaningful oversight. 

Mr. Dodaro. I think rigorous oversight by the Congress is of 
paramount importance. If you look at the history of our high risk 
list, which we do for this committee and the Senate, most of the 
areas that have come off the high risk list have come off in large 
part because of continued Congressional oversight. And the prep- 
arations for the last Census, there were 12 hearings that were 
held. I can give you many other examples. 

But unless there’s top attention by top officials in the executive 
branch and rigorous Congressional oversight, these difficult prob- 
lems will not get solved. We have ample evidence of that. I am con- 
vinced of it. But it can’t be just the one hearing once a year where 
they can just say, okay, we will go up there and sort of answer the 
questions one time. There has to be a sustained series of hearings 
with interim milestone of progress that would be assessed. 


Because as you said, part of the problem with the Defense De- 
partment, they have always had long-term goals. We will get there 
in five years, ten years or whatever. Now the Congress has set 
some interim goals. And I think a series of hearings could be held 
on why they are not meeting the interim goals if they don’t meet 
them. And I think that lays the groundwork for more meaningful 
Congressional oversight. 

But unless that happens, I am not that optimistic. 

Mr. Lynch. Thank you. Gene. Thank you, Mr. Chairman. I yield 

Mr. Lankford. Thank you. Mr. McHenry? 

Mr. McHenry. Actually, I want to follow up on what Mr. Lynch 
asked. It is a solid line of questioning. 

Now, there is a different emphasis today, we are talking more 
broadly on our side of the aisle on government spending and the 
other side of the aisle is about DOD. It is just more of an emphasis. 
But we all share the same concern. I think Mr. Lynch, when you 
talk about the wider bipartisan agreement now, but we have to 
look at Defense spending as well. We have to make sure every 
dime we spend there is appropriate and actually meeting the objec- 

Now, that for a long time has been driven by your side of the 
aisle being adverse to Defense spending and our side of the aisle 
embracing it. Now, the realities are setting in; we actually need to 
make sure that every penny, regardless of where it is in govern- 
ment, is very, very well spent and not just simply honoring our 
commitment to Defense. I certainly appreciate and concur with you 
on that. 

We also are on the Financial Services Committee. What we see 
there is with rule implementation, you don’t have harmonization 
between the CFTC and SEC, for instance. And I would like to 
thank GAO for the report they produced as a mandate within the 
JOBS Act on the utilization of Reg A, which is the smaller dollar 
offering, so that businesses can raise up to $5 million. 

This was well-utilized up until maybe a decade or two ago, where 
companies would raise up to $5 million, utilizing this option. And 
then what we found was, in 2011, you had one offering. And the 
SEC didn’t look at this and say, hey, maybe this is the problem. 
We need to make sure that businesses can get the capital they 

So the question I have for you is, do you see, and based on your 
experience, based on the work you put together, that Congressional 
oversight has led agencies to actually meet their goals? 

Mr. Dodaro. Oh, definitely. Yes. There are many examples of 
doing that. And so I think that is critical, in order to do that, either 
through hearings, requirements and authorization bills and appro- 
priations bills, et cetera. Congressional oversight can bring about 
many constructive changes and help agencies to achieve those goals 
by eliminating, in some cases, barriers, by creating legislative vehi- 
cles and by strategically making good investments where the agen- 
cies need to make those investments. Absolutely. 

Mr. McHenry. How can we enhance collaboration between agen- 


Mr. Dodaro. That is an issue. Now, the Results Act of 2010 re- 
quires more consultation across the agencies. What one of our find- 
ings was in this recent report was that when the cost-cutting goals 
are now set, and there are 14 interim ones that are set by the Ad- 
ministration, all the agencies that should have been involved in 
those cross-cutting goals weren’t involved. So we identified some 
additional opportunities for collaboration. 

I think the Congressional challenge is where those cross-cutting 
goals cross multiple jurisdictions, I would recommend, and have 
recommended that there be more joint hearings between selected 
committees in the Congress, both within each chamber and per- 
haps even across chambers. Because otherwise, there won’t be a to- 
tality and a good picture to look at over a period of time. 

Mr. McHenry. Well, we hear you on that. And on the Oversight 
and Government Reform Committee, we have done, I think, a pret- 
ty good job of actually teaming up with other committees, and even 
at the subcommittee level, making sure we have joint hearings. 
That is more so where it is done. 

Mr. Dodaro. Right. We have also published the best practices 
guide on how to promote more collaboration among the agencies. It 
is particularly important when you have these inter-agency groups 
that there is clear responsibilities, there is clear structure, they set 
goals, they set milestones. A lot of times, we find that inter-agency 
groups are created, but they really don’t set rigorous milestones. 

Now, sometimes Congress has done that legislatively for them, 
either require these groups to be formed or to set particular goals 
for them. So that is another avenue. But I would be happy to pro- 
vide this committee our best practices report on collaboration and 
provide any other support we can to help you in that regard. 

Mr. McHenry. We appreciate the work the General Account- 
ability Office, the GAO does. We certainly appreciate the good folks 
you have working for you and behind you today, and behind them, 
that are in that dungeon-like bunker that is the GAO head- 

Mr. Dodaro. The sturdy building. 


Mr. McHenry. Quite sturdy. Intended to be the National Ar- 
chives, if I remember correctly, an Archives facility. So we need to 
get you a little more natural light over there. But we certainly ap- 
preciate the light you shine on important agencies. 

With that, thank you, Mr. Chairman. 

Mr. Lankford. Ms. Duckworth? 

Ms. Duckworth. Thank you, Mr. Chairman. And Mr. Dodaro, I 
just want to say that having been over in that building, it is filled 
with a lot of warmth from your workers. That makes up for the 
lack of light. 


Mr. Dodaro. We will continue with the theme, absolutely. 

Ms. Duckworth. Yes, exactly. 

Mr. Dodaro, in your written testimony, you noted that Federal 
entities reported estimates of improper payment amounts that to- 
taled $107.7 billion for fiscal year 2012. Does that include the 
DOD’s estimates as well, in that number? 


Mr. Dodaro. Some of the DOD estimates aren’t included in 
there. There were problems with their estimating process, I believe. 
So 0MB did not include them and some other agencies in there. 

There are also some big programs that aren’t in there yet, Con- 
gresswoman Duckworth. The Temporary Assistance for Needy 
Families, the TANF program, the direct loan education program is 
not in there yet. So that estimate is not complete. 

Ms. Duckworth. Okay. That is what I was trying to get to, be- 
cause DOD is responsible for more than half of the Government’s 
discretionary spending, and yet in your testimony you highlight the 
improper payment estimates, the shortcomings of DOD’s financial 

If DOD can’t even properly estimate its own improper payments, 
doesn’t that heighten the government’s overall exposure to waste, 
fraud and abuse? 

Mr. Dodaro. Definitely. 

Ms. Duckworth. And some of those specific weaknesses that 
GAO has identified include DOD’s failure to do the following 
things. They have not yet developed an appropriate sampling meth- 
odology for estimating improper payments, they have yet to 
produce a statistical estimate for its largest program, the DFAST 
program, which is of course personnel pay, commercial pay. And 
also they have failed to maintain key documentation supporting 
improper payment estimates. Is that correct? 

Mr. Dodaro. Yes. 

Ms. Duckworth. How concerned are you with DOD’s failures in 
these areas? 

Mr. Dodaro. I am very concerned. And I have been for years. 
That is why we have put them on our high risk list in 1995, to try 
to shine a light on this problem, both for this Congress and to un- 
derscore to the Executive Branch how concerned we are about the 
situation over there. I think not only not only do you not have good 
accountability, but they are hampered in their ability to effectively 
make good timely decisions over there, because of the lack of good, 
reliable information. 

Ms. Duckworth. So what do you think is keeping them from de- 
veloping some of these processes that are in place at other agen- 
cies, such as the statistical estimating and some of the tools that 
are being used? Why is DOD unable to do this? 

Mr. Dodaro. As you know, they are a very decentralized, large 
agency. And there needs to be central direction and management 
and leadership there to really bring this problem home. Because a 
lot of the data crosses across multiple parts of the Department in 
order to be able to pull the information together. For example, 
DFAST makes the payments, but you have the personnel records 
in another part of the Department. They don’t match. They can’t 
be reconciled appropriately. 

So there hasn’t been in the past, they are trying to do it now, 
but really top level management attention and authority that can 
enforce the change across the entire Department. 

Ms. Duckworth. So until some sort of centralized management 
or process is established at DOD, knowing that that is not there, 
how is DOD doing with regard to cutting waste and fraud by reduc- 


ing the amount of improper payments, even if it is very decentral- 
ized in how they are going after it? 

Mr. Dodaro. Let me bring up, Asif Khan is focused on DOD fi- 
nancial management. I have given him the unenviable job of trying 
to make sure there are improvements over there. 

Mr. Khan. Thank you. Congresswoman Duckworth. That prob- 
lem is going to continue to happen. It really has to be fixed at the 
local level, where the transaction originates. It is going to be some 
time before they begin to address that problem. 

Ms. Duckworth. Is the improper payments also tied to, this 
committee had testimony in previous hearings on just not keeping 
track of how we are paying contractors, what we are being charged 
by contractors is not accurate. Is that all part of this, especially 
overseas, Afghanistan? 

Mr. Khan. Yes, it is. 

Ms. Duckworth. It is, okay. 

Mr. Dodaro. Yes, but on the waste, fraud, potential mismanage- 
ment issues, DOD occupies about one-third of the 30 areas on our 
high risk list. Because it is not only financial management, we 
have inventory management, contract management on there, weap- 
ons systems acquisition. And all those areas are susceptible to 
problems. That is why we have them on our high risk list. 

Ms. Duckworth. Thank you, gentlemen. Thank you, Mr. Chair- 

Mr. Lankford. Thank you. I would like to recognize myself. 

Mr. Dodaro, thank you as well, and your whole team, for the 
work that you do. I am trying to find out what we do know at this 
point and what we can know and what we don’t have a capability 
to find out. So just let me run through a couple of things. 

Can we at this point identify a list of all government programs 
that we have a list of, we know the agencies, the actual programs 
that exist at those agencies, does such a list exist that we can actu- 
ally track and go through and compare? 

Mr. Dodaro. Not yet in any complete reliable way. I will ask Mr. 
Mihm to come up. The Modernization Act of 2010 required 0MB 
to come up with such a list. They have produced now a list for each 
major department and agency, just recently, within the last month 
or two. Many other agencies have yet to report their list. We are 
looking at the list to make sure. Each agency was left to decide the 
definition of a program. So I don’t know if there is consistency yet 
across what is there or not. 

But it is in process now. It is very much needed, but I don’t be- 
lieve it is complete yet. 

Mr. Mihm. That is exactly right. There is, the list is out there, 
at least the first part of the list is out there. There is not com- 
parability across agencies. One of the things that we are evaluating 
is under a mandate that we have under the Modernization Act to 
periodically report is we are looking at that list and will be report- 
ing to this committee and others on it. 

Mr. Lankford. Will that list include a number of employees, and 
the administrative costs of the program, or just an actual list of the 
program itself? 

Mr. Mihm. At this point, sir, we are a bit away from being able 
to get to the programmatic cost data on that. We are just working. 


or 0MB is just working on, let’s just identify what government 
does in a consistent way. 

Mr. Dodaro. One of the limitations we have had when doing 
that overlap and duplication work is the lack of cost information, 
budgetary information for many of these programs. Once you get 
the list, that is really the next thing that needs to be put in place. 

Mr. Lankford. Okay, step one, to know every building we have 
in Washington, D.C., and who is actually in there. 

Mr. Dodaro. Right. 

Mr. Lankford. Step two, is a list of all the different departments 
that are within it. Step three, getting a chance to get a list of all 
those programs. And then we have to move to how much is the ad- 
ministrative cost for that program, how many employees are dedi- 
cated to that program. 

Do we have any ability at this point to then take to that pro- 
gram, what are the metrics that you are using to find out if this 
is effective? It may have a great title for the program, but does it 
actually do anything? And is it accomplishing anything? 

You had mentioned several points about metrics and standards 
and evaluating. How far away are we at this point, or is there any 
requirement that is out there that we actually get metrics for these 
different programs? 

Mr. Dodaro. There are requirements in the Government Per- 
formance and Results Act. But our work basically shows that is 
very uneven across the Federal Government. There may be 
metrics, but some of them are not outcome based, where you know 
the results of the program. You might know program activity. For 
example, how many people have been trained. But you won’t know 
exactly how many people actually got a job or the results of that. 

So I think that is a work in progress. But we point out in our 
reports much more needs to be done in measuring performance, 
both outcome, and then evaluating performance with program in- 
formation that looks at trends and metrics over time, why you are 
falling short, how can it be improved. 

So there is a ways to go until you have uniform, good, not only 
metrics, but good results across Federal Government. 

Mr. Lankford. What is needed for that from us? Is that an 0MB 
issue that they need to work out? Is there a statutory requirement 
that needs to be put in place to help provide a push to say, we have 
to have some way to be able to evaluate effectiveness or programs 
and to even know how many beneficiaries? You mentioned we don’t 
know how many people are trained for a job, but we don’t know 
how many people actually got a job. 

I am not even sure, when I look through some of the programs, 
I can’t even find out how many people were even trained for a job. 
It is just, this is the program that exists, no definition, no staff, no 
metrics, no number of beneficiaries, anything. 

Mr. Dodaro. And the real question, even if they did get a job, 
did that training help them get the job, or maybe many other fac- 
tors had an influence on their ability. So unless you have that in- 
formation, you don’t know whether you are getting a good return 
on your investment. But Congress can do a lot more both through 
the consultation process under GPRA where they are required to 
be. I have recommended to the Congressional committees that you 


outreach to the agencies and say, hey, you are supposed to he con- 
sulting with us. Let’s talk about these things. These are the meas- 
ures we would like to see put in place and improvements being 

Then there is the oversight process and legislative process. Chris, 
anything else? 

Mr. Mihm. No, I think on the consultation, it is a particularly im- 
portant opportunity for this committee and other committees. 
These consultations should be starting this summer on the goals, 
on the strategic plans that are to come out with the President’s 
next budget, as well as the agency priority goals. Those are the 
four to six top priorities that each agency is to establish. They have 
to consult with the Congress on those. And it is a very important 
opportunity to try to get a common understanding about what are 
we trying to achieve and how are we going to measure that per- 

Another big opportunity, and this is really one of the great in- 
sights of the Modernization Act, is it requires quarterly meetings 
to be held in the agencies on each of these agency priority goals. 
And then to discuss where are we, what do we need to do to im- 
prove and then rigorous follow-up to take place after that. It is 
modeled after what happened in New York City in the early 1990s 
called CompStat, and it has been used in CityStat and StateStat, 
the so-called Stat model. That data is to be published or is being 
published on That provides another great over- 
sight opportunity. Because those are the priorities that the agency 
has established and so you can really follow up with them and say, 
where are you in terms of achieving those goals. 

Mr. Lankford. Thank you. 

Mr. Davis just walked in. Mr. Davis, I think you are up to bat 
next. Are you ready for questions, or do you want to defer? You just 
walked back in, so let me do this. Mr. Meadows. 

Mr. Meadows. Thank you, Mr. Chairman. And thank you for 
being back with us, I thank each one of you for your hard work. 
I know that it is the support team that makes a big difference, as 
you will acknowledge. 

I am troubled that we have hearing after hearing after hearing 
and really nothing happens. When you talk about over $100 billion 
in really unaccounted for spending, it is one-tenth of our deficit. 
When we put it in perspective, that is one-tenth, we are sitting 
here trying to scramble, as members of Congress, to find $86 bil- 
lion. And you have found more than that just in funds. 

I set up new offices, and when I did that, I found, I went out and 
negotiated with governments to make sure that we didn’t have to 
pay for leases. So I am sitting there scrimping for $250 or $500 or 
$1,000, so it is very frustrating when I see it, and I know you 

One of the things that came up that gave me great concern 
though is we started sending rental payments to one of those ven- 
dors that never was authorized by us, we didn’t even give an 
amount. So they just started making up an arbitrary payment. We 
wouldn’t have known about it unless the government agency called 
us and said, I thought we were giving you this space for free. And 


we are paying for it. So this unaccountability is across, it is sys- 

So I want to get to your earlier point. You talked about motiva- 
tion and performance. Really, if we don’t control the purse strings, 
we don’t have any control. And if we don’t have a motivation where 
if you do a bad job you lose your job, or if you do a bad job you 
get your budget cut, how do we fix that? 

This is not, I would agree with my colleague opposite, Mr. Lynch, 
this is not based on this Administration or the prior. It is a sys- 
temic problem within government. So how do we fix that? And is 
it true? And I will ask this last one and I will let you comment on 
both of those. 

My understanding is that, until about 10 or 15 years ago, we con- 
trolled probably 95 percent of the spending. Now congressionally 
we are only controlling about 35 percent. Is that a true statement? 

Mr. Dodaro. Yes, that is true. That is because most of the 
spending right now is through mandatory programs, whether it is 
Medicare, Medicaid or Social Security. The only way Congress can 
control that spending is by changing the requirements of who is eli- 
gible and what types of payments are made. If you add interest on 
the debt, of those three things, mandatory spending is taking up 
about 66 percent or so. 

Mr. Meadows. Have we exacerbated the problem, though, by al- 
lowing agencies, when they get away with earmarks, we allow 
them to reprogram and we authorize the spending so they can 
move it around and have little penalties there as well? Have we ex- 
acerbated the problem with that? 

Mr. Dodaro. Well, I don’t think necessarily that would have in- 
creased the problem. Because they are supposed to report what 
they are changing in most cases, and the Congress has an ability 
to inquire on that issue. 

Mr. Meadows. We have the ability to inquire but not really stop. 
That is what I am finding, is when I call these agencies, they will 
talk to me, they have their congressional liaison and they will talk 
to you. But really, they are not afraid. Would you agree that most 
agencies are not afraid of Congress anymore? 

Mr. Dodaro. I don’t know about that. It depends upon if some- 
body is just leaving the witness table and you ask them that ques- 


Mr. Dodaro. But I do think there needs to be more teeth in 
place. To go to your very first question, what I have seen be effec- 
tive is when we point out a problem, many times Congress will 
fence the money, that means saying, okay, we are going to appro- 
priate this money but you can’t spend it until we get a report from 
the GAO or some other thing that convinces us that you have a 
good plan in place, that you fixed earlier problems. So Congress 
has effectively used that. It could do it much more. And I think it 
would be more appropriate. 

So Congress has the power of the purse strings. It has to be will- 
ing to use it effectively to leverage change. 

Mr. Meadows. Can your staff report back to us on what we can 
do to highlight it so we can put more teeth into it? Because I think 


it is time that the American people may want teeth. We look for- 
ward to your help there. 

Mr. Dodaro. We would be happy to do that. 

Mr. Meadows. Thank you. Mr. Chairman, I yield back. 

Mr. Lankford. Thank you. Mr. Connolly 

Mr. Connolly. Thank you, Mr. Chairman. Welcome back. Gen- 

Mr. Dodaro. Thank you. Congressman. 

Mr. Connolly. I want to talk to you about two things. I know 
my colleague Ms. Duckworth asked some questions about improper 
payments. But in the previous subcommittee, in the last four years, 
we had a series of hearings on improper payments. What is the es- 
timate, the global number every year we think fall into that gen- 
eral rubric? 

Mr. Dodaro. The latest was $107.7 billion. But that estimate, in 
our opinion, is not complete. There are four agencies and ten pro- 
grams that are not yet reporting, including the large Temporary 
Assistance for Needy Families. Then there were another six agen- 
cies where their estimates were not good enough for 0MB to re- 

Mr. Connolly. So it is north of the official figure? 

Mr. Dodaro. I believe so, yes. 

Mr. Connolly. If we were to say it was rounded out to $125 bil- 
lion a year, would that be a fairly safe rounded-out number, do you 

Mr. Dodaro. Given how these numbers vacillate. Congressman, 
I hesitate to give a guess on that. 

Mr. Connolly. Well, if we just took that number for a minute, 
we could take $107 billion, too, but times ten, that number of im- 
proper payments over a ten-year period exceeds sequestration. Is 
that correct? 

Mr. Dodaro. Oh, sure. Yes. 

Mr. Connolly. And how well do you think the government is 
doing in trying to address that program? In theory, if you could get 
it to zero, which ought to be the goal, we will never quite attain 
that goal, but if you can give yourself a stretch goal, incredible 
things can sometimes happen, how well would you assess. General, 
that the Federal Government is doing in putting in place mecha- 
nisms to bring their respective numbers down? 

Mr. Dodaro. I would say there is a fair amount of activity, not 
much results yet. 

Mr. Connolly. One example, of that total, the lion’s share is 
Medicare fraud, is that correct? 

Mr. Dodaro. Yes. Medicare, Medicaid, yes. 

Mr. Connolly. About $50 billion a year? 

Mr. Dodaro. Forty billion dollars, $50 billion, yes. 

Mr. Connolly. Do you believe that there is evidence that the 
U.S. Attorneys’ offices around the Country, of which I believe there 
are 99, are sufficiently seized with this mission to bring that num- 
ber down through prosecutions, investigations and prosecutions? 

Mr. Dodaro. I know that the HHS Inspector General’s office 
works with them. They really focus on that area. I don’t have a 
basis for answering that question, beyond knowing and seeing 


there are prosecutions in some cases. I really don’t have empirical 
evidence to answer that question. 

Mr. Connolly. Okay, well, I will give you a data point. One U.S. 
Attorney’s office. New England, just one, is accountable for identi- 
fying and helping to recover $3 billion of Medicare fraud. One. 
There are 98 others. Now, not all of them may be that big. But one 
of the things I would urge you to look at is, as part of this, are U.S. 
Attorneys’ offices sufficiently seized with this mission? Because if 
every one of them replicated the zeal and the commitment of talent 
that this one did, we could bring that $50 billion number down con- 

Mr. Chairman, we were just talking about improper payments 
and some of the work this committee has done the last four years 
on a bipartisan basis to identify the problem and to try to get Fed- 
eral agencies seized with this mission. I was pointing out, Mr. 
Chairman, that if you round it out at $125 billion a year, and that 
could be a low figure, actually, but we will take that one, times ten, 
it exceeds sequestration. 

So without raising anyone’s taxes, without slashing any invest- 
ments, here is low-hanging fruit, in a sense. And it just seems to 
me for want of a champion, for want of some focus, we are not 
making the kind of progress we need to be making. 

Mr. Dodaro. And I think, on your point, we will look into the 
U.S. Attorney’s priorities on that. But that is one end of the prob- 
lem, is to keep trying to get it back once it has gone out the door. 
The other side is preventing it. And I think for example, we have 
a recommendation that they establish surety bonds up front with 
new providers. So if you find payments later, the government has 
some money that they can offset up front, that hasn’t been fully im- 
plemented yet as well. 

So there are a whole range of things. 

Mr. Connolly. In addition to management, and my time is 
about to run out, but the Chairman and I co-authored a bill that 
is now part of the Defense Authorization Act and hopefully will be- 
come law. It is designed to provide some rigorous tools for Federal 
agencies to upgrade their management of IT. Acquisition, mainte- 
nance, personnel management. The Chairman identified that, for 
example, in the top 26 Federal agencies there are over 250 people 
with the title of CIO, which means this, right, no one is in charge, 
no one is accountable. Our bill is designed to try to at least have 
one main person called CIO who is infused with responsibility, au- 
thority and accountability. 

The other thing behind this bill, though, is IT, if we are going 
to have to live with sequestration or something like it for 10 years, 
if you don’t simply want an absolute contraction, a zero sum game, 
IT has promise, if properly managed, to help us on so many fronts, 
one of which is this, too. So I hope we can also look at how is IT 
being deployed so that we are not making the errors that are part 
of this hole. 

Mr. Dodaro. We are looking at that. We are looking at that, and 
you are absolutely right. I am very supportive of the provisions in 
that bill. 

Mr. Connolly. I just end with this, this is a subject this com- 
mittee has done some real trail-blazing work on, I think, through 


Congress. It is not a sexy topic, but it has real promise. I would 
hope, General Dodaro, that we can work together and try to create 
some metrics for Federal agencies. Because without metrics, it is 
aspirational. We need to move from the aspirational to the produc- 

With that, Mr. Chairman, I yield back. 

Chairman ISSA. [Presiding] I thank the gentleman. 

I would say that our legislation really is as close to the swimsuit 
edition as you can get in legislation. So I am not sure I go with 
the gentleman that there is no appeal to it. I think it is pretty at- 

Mr. Connolly. I stand corrected. 


Chairman IsSA. Mr. Bentivolio. 

Mr. Bentivolio. Thank you, Mr. Chairman. Thank you. Comp- 
troller General. Thank you for being here today. 

After listening to your testimony today, I can’t help but remem- 
ber a story a constituent told me, it is called government account- 
ing, how you tell the story. Perhaps you have heard it, but just 
bear with me, about the three gentlemen walking down the street. 
It starts to rain, they each have $10. So they pool their money to- 
gether and get a hotel room for the night. And the hotel manager 
later discovers that he overcharged them $5. 

So he calls over the bellhop and wants the $5 returned to the 
three gentlemen who pooled their money together to get the room. 
On his way up to the room, he pockets $2 and he hands each of 
those three gentlemen back $1. They each originally contributed 
$10, minus $1 is how much? 

Mr. Dodaro. Nine. 

Mr. Bentivolio. Nine, three times nine? 

Mr. Dodaro. Twenty-seven. 

Mr. Bentivolio. Plus the two in the bellhop’s pocket? 

Mr. Dodaro. Right. 

Mr. Bentivolio. Where is the other dollar? 


Mr. Bentivolio. That seems to be the question. I find it startling 
how much taxpayer money we have seemingly lost track of in the 
Federal Government. Many government programs are on auto-pilot 
when it comes to their budget. Every year it is assumed that they 
need more money with zero-based budgeting, which would force 
agencies to justify every penny of taxpayer money they get to spend 
every year to help agencies account for the money that they re- 

Mr. Dodaro. Pardon me, I am not sure I understood the ques- 
tion. I am still trying to figure out where the $2 went. 


Mr. Bentivolio. One dollar. 

Mr. Dodaro. One dollar, right. 

Chairman IsSA. Well, we would be thrilled if there was only $1 
that was unaccounted for. 


Mr. Bentivolio. Government accounting could add up to billions. 

Mr. Dodaro. Yes, definitely 


Mr. Bentivolio. When I explain that, it seems to me that is how 
government agencies account for their money, that is how they tell 
the story. We all know 25 plus 2 plus 3 is 30. So we can account 
for the money. But it seems that the government doesn’t under- 
stand that. And they seem to lose a lot of money. It seems to me 
that if we got rid of the waste and abuse, we could probably afford 
a lot more or pay down our national debt. 

But my simple question is, would zero-based budgeting, which 
would enforce agencies to justify every penny it takes of your 
money they get to spend every year, help agencies account for the 
money that they receive? 

Mr. Dodaro. I think that that effort has been tried a bit in the 
past. I think it has some potential value if it is implemented with 
a lot of less administrative sort of burden. But the idea though, of 
justifying the programs by showing good results, I would support 
that ahead of time. In other words, you have to justify the pro- 
gram’s achieving its objectives with some empirical data that has 
been independently validated. I think that is the way to go. 

Mr. Bentivolio. Zero-based budgeting? 

Mr. Dodaro. It would justify what you are going to spend the 
money for if you have good information. I mean, a part of this is, 
you can send people to go through all the requirements, they will 
generate volumes of information, but it may not be accurate, it may 
not be good information and it may not be convincing. So it em- 
barks on a big process where, at the end of the day. Congress is 
still left, even though it may be generated from a zero basis, with 
a lot of information that really doesn’t help them make a decision 
on how to fund the money. 

So to me, it would be better to focus on having them demonstrate 
results of the programs and justify the expenditures for the results 
that they are receiving. Right now, that doesn’t happen. If you 
want to try to curtail a program or limit it, you have to prove it 
is not working and have data to do that. That is exactly the oppo- 
site of the way it should be, in my opinion. I think that would be 
a more effective way and a more efficient way for Congress to go 
about making its decisions. 

Mr. Bentivolio. Thank you very much. 

Chairman ISSA. Would the gentleman yield? 

Mr. Bentivolio. Perhaps I could restate part of his question, 
which is not as much on this hearing, but I think it is germane to 
the gentleman from Michigan’s question. If Congress in its appro- 
priation were to have all appropriations not subject to CR unless 
specifically shown, in other words, when we authorize something 
and we authorize it for one year, and as you know, when we go into 
CRs, which happen often, essentially we keep money trapped in 
things which should have expired. 

If we changed our bias toward, you must specifically have essen- 
tially an X next to something that says, this continues unless 
amended automatically, you could end up with, perhaps in discre- 
tionary spending, and even some that would be considered less 
than discretionary, you could end up with perhaps as little as 80 
percent of the budget subject to CR, where you have an automatic 
cut to all these programs. 


So instead of a CR, representing a continued resolution, substan- 
tially at the same rate unless you agree, you would have a cut 
automatically in all those programs with no replacements unless in 
fact the budget process used those funds with new appropriations. 
Wouldn’t that move the bias toward what we would call automatic 
sequestration that is predetermined? Something that before seques- 
tration we perhaps never thought of? 

Mr. Dodaro. I would have to think about that a little bit. I will 
give you a definitive answer. Offhand I would say that it holds 
promise to do that. 

The other thing is that there ought to he mandatory, in my opin- 
ion, mandatory sunset provisions for every Federal program with 
a positive reauthorization act approach. What you are suggesting 
kind of goes in that direction. And for that reason I think it holds 
some promise. 

Chairman ISSA. Thank you. You have looked at this in the past. 
Perhaps if you could dust off some of that and put those two to- 
gether so that this committee could look to our brethren on appro- 
priations with a mind toward current appropriations anticipating, 
if you will, sunset where appropriate under appropriations and 
then to the other authorization committees, the sunset inherent in 
authorization that could put this into play. 

Mr. Dodaro. Yes. 

Chairman IsSA. Thank you. With that, we go to the gentleman 
from Illinois, Mr. Davis. 

Mr. Davis. Thank you very much, Mr. Chairman. 

Mr. Dodaro, how are you? 

Mr. Dodaro. I am fine. Nice to see you. 

Mr. Davis. It is good to see you. 

GAO reported in its audit of the government’s consolidated finan- 
cial statements that it gave a disclaimer of opinion on the state- 
ment of social insurance for 2012, 2011 and 2010 because of signifi- 
cant uncertainties primarily related to the achievement of projected 
reductions in Medicare costs. Some of those uncertainties relate to 
whether projected statements from the Affordable Care Act would 
be fully achieved, is that correct? 

Mr. Dodaro. Yes, that is. 

Mr. Davis. But there are other uncertainties related to Medicare 
savings that contributed to the disclaimer of opinion, such as esti- 
mated reductions in payment rates for physicians, is that correct? 

Mr. Dodaro. That is correct, and that is, as you know, probably 
for the last ten years if maybe not longer. Congress has always 
waived these provision cuts that should be in place. Last year I 
think they were estimated to he about a 31 percent reduction. 

Mr. Davis. So I get to my point, I want to put this in perspective. 
GAO is not saying that savings won’t be achieved under the Afford- 
able Care Act. You are saying that the amount of Medicare savings 
in the future is not a certainty, it is not absolutely known? 

Mr. Dodaro. That is correct. And I might point out. Congress- 
man, it wasn’t just GAO. The Social Security trustees, which in- 
cludes the Secretary of the Treasury and Secretary of HHS, said 
there were uncertainties and reported that with the estimates as 
well as CMS’ actuary and the auditors there as well. So there is 
a general consensus. But you are right, we are saying it is uncer- 


tain. Because it is uncertain there are alternative estimates that 
were made also, which show a swing of about $10 trillion over this 
period of time on that $27 trillion original estimate. 

So it is potentially significant. 

Mr. Davis. And even so, there are those who, in fact, try using 
that point to suggest that the Affordable Care Act is not going to 
save money, when in fact, if I am correct, it already has achieved 
significant savings. For example, in February, the Department of 
Justice and HHS announced that they had achieved $4.2 billion in 
Medicare fraud recoveries. This is the highest three year returns 
on investments in the history of health care fraud and abuse pro- 

I guess it is basically due to new tools to crack down on fraud 
and new ways of looking at it and ferretting it out. Is that correct? 

Mr. Dodaro. I would have to get back to you on that issue and 
supply something for the record. I will do that. 

Mr. Davis. Bottom line, I mean, we are certain, in a real sense, 
that the Affordable Care Act has provided for savings and we can 
be fairly certain as we project that we are going to see additional 
savings as time goes on. Is that pretty close to how one can view 
what the data has shown? 

Mr. Dodaro. Our focus was on the future projections for the pro- 
gram, and what the assumptions were and the basis for those as- 
sumptions. That is what has led us to the uncertainty issue, and 
others that have looked at those areas. We have not looked at the 
counterpoint that you are raising right now. So I don’t have an an- 
alytical answer for you on that issue. It is something that we can 
take a look at. 

Mr. Davis. We would be pleased if you would do that. Thank you 
very much. And I yield back. 

Chairman ISSA. Would the gentleman yield for a question? My 
staff tells me that recovery is based on legislation from 2006 that 
increased the audit. Are you speaking of some other aspect in the 
Affordable Care Act that would have led to that recovery increase? 

Mr. Davis. Well, the legislation was done in 2006. So we were 
already privy to having it. And the Affordable Care Act, of course, 
makes use of it. So we still see the savings. 

Chairman IssA. I don’t understand how the Affordable Care Act 
makes use of the Medicare, the Affordable Care Act hasn’t taken 
effect, and the audits that are leading to greater recovery I think 
are coming out of that effort by Congress. They are both good ef- 
forts when it comes to trying to control costs. I just want to make 
sure the record is clear, and I think Mr. Dodaro can make it clear 
for us, where he thinks that savings or recovery has come from, 
what efforts and what statute. 

Mr. Davis. And if I might, Mr. Chairman? 

Chairman IssA. Of course. 

Mr. Davis. Just as we cannot be sure of how much savings there 
would be, we don’t have any reason to suggest that there will be 
no savings. So I think what the Comptroller is saying, we haven’t 
had enough experience yet to be able to make that determination. 
That is what he will look into. 

Chairman IsSA. I look forward to discovering that with you. 

Mr. Davis. Thank you. 


Chairman ISSA. I thank the gentleman. 

We now go to the gentleman from Georgia, Mr. Woodall. 

Mr. Woodall. Thank you, Mr. Chairman. 

I want to follow up on a question that Mr. Lynch was asking ear- 
lier, talking about the importance of Congressional oversight, how 
folks were able to make a difference. 

One of my great frustrations is that we seem to sometimes be 
Republicans against Democrats or House against Senate, as op- 
posed to Article I versus Article II. Tell me about the effectiveness 
of oversight in the years that you have had a chance to watch it. 
Has it been Article I doing oversight over Article II, or has it been, 
as Mr. Lynch suggested, the Republicans doing good oversight over 
Democrats, and Democrats doing good oversight over Republicans 
but not necessarily houses of the same party doing good oversight 
over their Executive Branch president? 

Mr. Dodaro. Over the years I have seen a variety of oversight 
techniques that fall into all the different categories that you talk 
about. The most effective is when Congress is united in its over- 
sight over an Executive Branch function or activity, and even when 
there is support from GAO or even 0MB, in some cases, on the 
need to make improvements, when there is a consensus, where 
facts have been developed, there is a clear record that there is a 
problem that is sort of an unimpeachable kind of a problem state- 
ment. People may disagree on how to solve the problem. But at 
least you have the facts. 

I think those types of oversight vehicles are the most effective. 

Mr. Woodall. Does it take two houses in Congress doing over- 
sight to achieve those goals, or can you do it in a unicameral way? 

Mr. Dodaro. You can do it in a unicameral way. Unless the solu- 
tion is rooted in legislation that needs to be put in place, then obvi- 
ously you need both houses involved. But a lot can be accomplished 
without legislation. 

Mr. Woodall. Well, as you go through that high-risk list and 
you look at things that have been accomplished, you do see the ef- 
fective list of things that could be done strictly within an Adminis- 
tration and those things that require Congressional activity. My 
recollection is we don’t do nearly as well on those things that re- 
quire Congressional action to get them done. 

Let me talk about Medicare for just a moment. I put that doc fix 
in the category of things I tell my constituents back home, if I tell 
you I am going to solve this in years eight, nine and ten of the ten- 
year budget window, you should just ignore me altogether. The 
question is, what am I willing to do this year to make things hap- 

I tell my friends in the physician community that they should 
stop lobbying for the doc fix, they should let those cuts go into ef- 
fect and they should let my mom and dad begin to lobby to have 
the doc fix fixed. Because at the end of the day, when you reduce 
the payments the physicians are receiving, it is refiected in the 
quality of care that my mom and dad on Medicare receive. 

Thinking about effective oversight that changes things, do you 
have any examples in the time that you have been leading where 
the American people have led in getting a change implemented? I 
always think about catastrophic care, and Chairman Dan Rosten- 


kowski, back in the day, having his car rocked by angry seniors. 
And guess what, that got wonderful results here on Capitol Hill. 
Have you seen the American public being the partner of GAO in 
good accountability? 

Mr. Dodaro. Yes, definitely. I think the example you gave, the 
other one was when the premiums were raised on Part B. During 
that period of time, there was a huge backlash. Another example, 
just at the GAO, we have a hotline where people can call in from 
the public and suggest areas where they think there is fraud, waste 
and abuse. The ones that we find that are credible are the kinds 
of tips we follow up on and save money in a couple of cases. 

So the public can be better informed, and I think if they are bet- 
ter informed they can be very helpful in providing that type of 
oversight that you are speaking about. 

Mr. Woodall. And if I were to call CMS today and say, my mom 
and dad received a $100 charge for a doctor they never saw, could 
it possibly be a legitimate charge, I am sure they would tell me 
that they are working on billion dollar fraud cases and they don’t 
have time to look into my $100 fraud case. Is there a threshold as 
the public calls in with those tips for all that you have to do with 
the limited staff that you have to do it with, what rises to the 

Mr. Dodaro. We will evaluate it. We wouldn’t want to do some- 
thing where we spend more money than what we potentially could 
save on those areas. But I would say that, to CMS, we spend the 
money $100 at a time, we need to take a look at everything. 

Mr. Woodall. When we are talking about trying to have effec- 
tive government and efficient government, I just want you to know 
how much fun it is for me to watch your team behind you as these 
questions come out and you answer them. It is not just one head 
as a subject matter expertise that is nodding behind you, it is four 
or five heads, all of the know exactly what is going on and say, yes, 
this is what that is. 

Mr. Dodaro. Thanks for that feedback. I find that encouraging. 
I don’t usually find out until after the hearing how well they did. 


Mr. Woodall. Thank you very much. Thank you, Mr. Chairman. 

Chairman ISSA. I thank the gentleman. 

I believe the gentlelady from California, Ms. Speier, is next. I am 
sorry, Ms. Kelly. 

Ms. Kelly. Thank you, Mr. Chair. 

Thank you for being here. One of the challenges in evaluating 
whether agencies are duplicating efforts is the fact that until re- 
cently there was no inventory of agency programs. 0MB is now re- 
quired to publish a list of all agency programs. They just released 
this first list in May. The list of agency programs can be found on 
the website, 

Do you believe that requiring agencies to provide information 
about what programs they have will help Congress and the public 
hold agencies more accountable? 

Mr. Dodaro. Yes, definitely. And we would be enhanced better 
if we get the complete list and it is accurate. 

Ms. Kelly. Okay. One of the significant improvements made by 
the GPRA Modernization Act was the establishment of perform- 

58 It is a government- wide website that will allow the public 
to access information about government performance. 

Do you believe this has improved the transparency of information 
about agency performance? 

Mr. Dodaro. I think it is a good start. But as we point out in 
our report, there are a lot of opportunities to have that website be- 
come much more effective and helping promote transparency and 
accountability and by becoming more searchable, user-friendly, et 
cetera. So it is a beginning. 

And I think a lot of the efforts that have been legislated by the 
Congress over the years,,, the per- 
formance. gov, is important and helpful. I would encourage the Con- 
gress, as we have been discussing a little bit earlier, to think about 
ways that that could be even improved further, and that the Data 
Act would require that. 

Ms. Kelly. Also, GAO issued a report last month titled Man- 
aging for Results: Leading Practices Should Guide the Continued 
Development of One of the points that this report 
makes is that moving forward, 0MB should increase its outreach 
to stakeholders. GAO uses Maryland’s Governor O’Malley’s per- 
formance website, StateSat, as an example: “Following the initial 
creation of the State’s performance reporting website, officials in 
Maryland analyzed the website’s performance metrics to get a 
sense for how people were using the site, as well as the information 
they were searching for. They also employed usability testing to 
collect insight into the navigation and content of the website. From 
these insights, they identified the need to make information on re- 
lated State programs and resources more easily accessible through 
the website, which is now reflected in its design.” 

Do you feel that 0MB evaluated the lessons learned from State 
and local websites, such as Maryland’s StateStat or Boston’s About 
Results, or is there something 0MB should be doing to improve 
performance data? 

Mr. Dodaro. I will ask Mr. Mihm to answer that. 

Mr. Mihm. OMB was certainly aware of these other websites. As 
to whether or not they did a rigorous evaluation, the answer to 
that is no. And one of the things that we recommend is, as you 
pointed out, that they look at those websites, they look at, which is the Federal Government’s best practice guide 
for government websites, and make sure that they are consistent 
with those standards there. 

The key thing they had with, as you mentioned, 
it has an awful lot of information in there, a lot of very valuable 
information in there. But it is really at this time set up for inside 
baseball, that is, you have to be a Fed looking for other Federal in- 
formation. It is not very forward-facing to citizens or to the Con- 
gress. That is the next step that they really need to take. 

Ms. Kelly. I am very happy to hear that. Thank you very much. 

Ms. Cummings. Would the gentlelady yield? 

Ms. Kelly. Yes, I will yield. 

Mr. Cummings. I am very familiar with the Maryland system 
that you just talked about. Because Governor O’Malley was my 
mayor, and now of course my Governor. One of the things that the 
system did bring was accountability. We were able to track the per- 


formance of government, how effective and efficient government 
was being. But you see value in that, though, right? 

Mr. Mihm. Oh, yes, absolutely, sir. 

Mr. Cummings. Because before that, you didn’t know what trash 
wasn’t being collected, what things were not being addressed. Now 
you could actually say, okay, on zone three of the police department 
we have X amount of things going on, this was the response. And 
basically they would flash it up. We could come in as members of 
Congress or anybody, sit there and see exactly how government 
was functioning. 

I don’t know how much with regard to cost that it went. But in 
regard to effectiveness and the use of the taxpayers’ dollars, I 
thought it was a very good thing on the part of the Governor. 

Mr. Mihm. Yes, sir. In fact, a few moments ago, we were talking 
about how under the Modernization Act, it took the model that has 
been used in Baltimore with CityStat, StateStat, and that is now 
a Federal requirement. That type of information has to be available 
on as well. 

We evaluated the Federal efforts on that, and actually looked at 
it from two different perspectives. First is that the question each 
time as you have moved up the stat model, from CompStat to 
CityStat to StateStat is, does it scale. Governor O’Malley had a 
great line when he became Governor of Maryland, he said it was 
a bigger ship but smaller rudder. He figured out how it changed 
the government at that level. 

So we were looking at that at the same level, at the Federal 
level, at the stat meeting scale, do they work at the Federal level 
and do they work for cross-cutting programs. We found it does 
scale, that is. Federal managers and leaders of agencies, and this 
is a leadership strategy, are using them. What we did not find but 
are looking forward to finding as we do additional work is, are they 
actually using them to coordinate cross-cutting programs. 

As you know, the extent in Maryland, the beauty of that is the 
Governor also set up his priority goals for the State and those are 
actually what brought together a variety of State programs. Those 
are reported on the website. You have BayStat, which brings to- 
gether various jurisdictions and levels of government to talk about 
the health of the Chesapeake Bay. 

So this is a very powerful device as a leadership strategy, if it 
is actually used to drive performance. 

Mr. Cummings. Thank you very much, Mr. Chairman. 

Chairman ISSA. I thank the gentleman. 

We now go to the gentleman from Tennessee, Mr. Duncan. 

Mr. Duncan. Thank you very much, Mr. Chairman. 

You talked about savings in Medicare. In 1990, after 25 years. 
Medicare cost 12 times more than the original projections when it 
first passed. Now the costs on Medicare have quadrupled since 
1990. So Medicaid has a similar history. All these Federal medical 
programs, the Congress has always received very lowball estimates 
on the front end. Then the costs have just exploded. Already I have 
read articles saying that the so-called Affordable Care Act, which 
I refer to as the Unaffordable Care Act, the cost projections are two 
and three times when we originally passed. 


I notice, I am sorry I had to be in another committee, and I 
wasn’t here for most of your testimony, but in your testimony, Mr. 
Dodaro, you say the Federal Government was unable to dem- 
onstrate the reliability of significant portions of its consolidated fi- 
nancial statements. And then you say another place that our work 
has found that the information provided to Congress is not always 
useful for Congressional decision-making, because the information 
was “not clear or directly relevant or sufficiently detailed.” 

Mr. Dodaro. Right. 

Mr. Duncan. Then I looked at the back page of your report, and 
I see almost every agency, the opinion expressed by the agency 
auditor, almost all of them say unqualified. I am not an account- 
ant, so I am not really clear. What exactly does that mean? 

Mr. Dodaro. For 21 of the 24 departments and agencies, they 
got an unqualified, clean opinion. So they are fine. Where you have 
problems is DOD and DHS and another agency, they did not give 
any clean opinions. But DOD accounts were over a third of the 
Federal Government’s assets. 

Mr. Duncan. I saw that figure, 34 percent. 

Mr. Dodaro. Right. And over 20 percent of spending on the part 
of their programs. So it is a huge obstacle to getting an opinion on 
the consolidated financial statements. 

There is a lot, also, of activity where agencies have to do busi- 
ness with one another or have transactions. Treasury can’t net 
those out effectively and balance the statements. In fact, they have 
to add in a $20 billion net sort of plug figure in order to make the 
statements balance. 

And then the government-wide statements aren’t effectively rec- 
onciled to the audited financial statements of the agencies that you 
are holding there in your hand. So there is a discrepancy, and an 
inefficiency and ineffectiveness in how the consolidated statements 
of the Federal Government are compiled. So that is the reason for 
the differences in the statements in that listing of agency audits. 

Mr. Duncan. And there is a deadline, the Department of Defense 
has been given a deadline of 2017, is that correct? 

Mr. Dodaro. That is correct, for a full auditability, 2014 for an 
audit of their statement of budgetary resources, which would ac- 
count for how they account for their budget. 

Mr. Duncan. All right. Let me ask you something else. We al- 
ways hear, I read so many different articles about these unfunded 
future liabilities. And I see all these figures that are way up there 
in the megatrillions. Do you feel like we have a good handle on 
that? Where are we headed with these unfunded future liabilities 
for all the different things we promised the American people? 

Mr. Dodaro. Basically, in addition to doing the audit or the con- 
solidated financial statements, we do long-range simulations of the 
Federal Government’s budget. And our conclusion is while the 
Budget Control Act and the American Taxpayer Relief Act provided 
some help in bringing down the deficit, that long term, over the 
next sort of 70-year period, maybe even shorter than that, the Fed- 
eral Government is on a long-term unsustainable fiscal path that 
right now, debt held by the public is at 73 percent of gross domestic 


Historically, the 40-year average has been about 39 percent. The 
demographic wave, and the main reason is for the unsustainable 
path, or the changing demographics, between now and 2029, every 
day, it will be on average about 10,000 Americans turning 65. They 
will be hitting the Medicare program. 

So we are going to go into this demographic wave. Heath care 
costs, while coming down a bit, are still rising faster than gross do- 
mestic product. And the combination of those factors, I mean, the 
trustee estimates predict Medicare trust fund will exhaust in 2026, 
Social Security trust fund will be exhausted in 2030, the disability 
component of the Social Security trust fund will be exhausted in 
their predictions in 2016. We are showing, unless something hap- 
pens on the short term, the annual deficits coming down from 
where it was in the past several years, which is a good thing, but 
we still have a deficit which is adding to the cumulative debt. 

So we are going into, some of our projections show between 2028 
and 2034, under any scenario, we potentially, unless changes are 
made, will have debt held by the public higher than 100 percent 
of gross domestic product, which means we would be owing more 
than we are producing in the entire economy. We have only hit 
that historic high, it was during World War II, which was 109 per- 
cent. So I am very concerned about the future financial path that 
the Federal Government is on. 

Now, we report that every year, these statements, and then we 
do updates every two years. We have actually got now an account- 
ing standard put into the consolidated financial statements that re- 
quires a fiscal sustainability projection, a model, which is included 
in this report. So the Administration agrees that we are on an 
unsustainable path, and so does CBO. 

Mr. Duncan. My time is up, but I heard in a meeting just this 
morning that Turkey, for instance, has a debt to GDP ratio of 35 
percent. And now we have this $17 trillion debt. And I think about 
$15 trillion or $16 trillion economy. It is just mind-boggling. And 
we keep spending money like there is no problem, or like there is 
no tomorrow. 

Thank you. I really appreciate the efforts that you are making 
in that regard, and the way that you are trying to be a Paul Revere 
about this situation. Thank you very much. 

Chairman IssA. I thank the gentleman. 

We now go to the gentlelady from California, Ms. Speier. 

Ms. Speier. Thank you once again, Mr. Dodaro, for your out- 
standing leadership. I am sure sequester is impacting you as well. 
And if there is one agency that pays for itself over and over again, 
I would suggest it is your agency. 

What is the impact of sequestration on your agency? 

Mr. Dodaro. We have been reduced in staff size about 14 per- 
cent since 2010. Now, of course that was earlier than sequestration 
but sequestration compounded that. So we are at our lowest staff- 
ing level since 1935. 

Ms. Speier. The lowest staffing level since 1935? 

Mr. Dodaro. Yes. 

Ms. Speier. And how has our budget grown since 1935? 

Mr. Dodaro. Oh, quite a bit. And government is a lot bigger 
than it was since then. 


Fortunately we have been able to handle it by downsizing. So I 
haven’t had to lay anybody off or furlough people. But we just don’t 
have enough staff to get to all the requests in a timely manner 
than we have. So I am hopeful this year we will do well. Last year 
we returned $105 for every dollar spent in GAO, over $55 billion 
in documented financial benefits as a result of our work, let alone 
all the work we did to inform the Congress for oversight purposes. 

Then we had over 1,400 other non-financial benefits changes and 
laws, et cetera, that have helped improve public safety and improve 

Ms. Speier. Okay. In your report, you reference the lack of ac- 
countability in the Army’s payroll system. In fact, you say the 
Army and Defense Financing and Accounting Service could not 
readily identify the full population of payroll accounts associated 
with the Army’s $46 billion active duty military payroll because of 
these deficiencies. 

Does that mean that the Army doesn’t know how many people 
it is paying for? 

Mr. Dodaro. I will ask Asif Khan, who has been focusing on this. 

Mr. Khan. That is correct. At times the Army does not know ex- 
actly how many people they are paying, because of the lack of sys- 
tems and the lack of processes and controls. 

Ms. Speier. Does that mean that the Army is not able to reliably 
match a soldier’s personnel file to their payroll file to make sure 
that they are being paid the correct salary? 

Mr. Khan. That is correct. That is a condition there. 

Ms. Speier. So maybe we should alert everyone who is serving 
in the Army that they should check their payroll stubs very care- 
fully, because they could be being paid the wrong salary. 

Mr. Khan. That is correct. There could be overpayments and un- 
derpayments, based on our experience and the work that we have 

Ms. Speier. This is pretty outrageous, isn’t it? 

Mr. Dodaro. This is not what you expect. 

Ms. Speier. All right. You have also identified that certain inter- 
governmental accounts were not in agreement to the tune of hun- 
dreds of billions of dollars, despite the fact that 0MB and Treasury 
required CFOs of 35 significant Federal entities to reconcile, on a 
quarterly basis, their inter-governmental activity and balances 
with their trading partners. 

Are there any consequences for the failure to perform these year- 
end reconciliations? 

Mr. Dodaro. No meaningful ones, no. 

Ms. Speier. Okay, so if a CFO of a major corporation failed to 
reconcile their books, presumably they would be fired and face ac- 
tion by the SEC. But because they are doing business with the gov- 
ernment, they don’t have to reconcile their books, and there is no 
consequence. Is that reality? 

Mr. Dodaro. That is reality. That is exactly where it is. That is 
why I think there needs to be more rigorous Congressional over- 
sight. In fact, and Gary, correct me if I am wrong, in about 14 
cases the CFO said they don’t even know why, they are not even 
given an answer. 


Ms. Speier. Can you provide the committee with those compa- 
nies and those CFOs? 

Mr. Dodaro. Yes, we can. 

Ms. Speier. And I really think that this is pretty outrageous. 
And if we are doing business with companies that can’t reconcile 
their books and refuse to do so, then why are we doing business 
with them? There should be consequences to not complying with 
the requirement to reconcile the balances with their trading part- 
ners. What would you recommend as a penalty? Loss of a contract? 
A thousand dollars a day? What would be appropriate? 

Mr. Dodaro. I think there has to be some link to the agency’s 
appropriation process in order to do that. It becomes a tricky issue. 
But my first recommendation is that we start with Congressional 
oversight, make them explain it, and give them a deadline in which 
they have to rectify the problem. Part of the issue right now is 
there is not enough pressure on them to cause them to do this. 
Treasury tries to control them and to work with them and to sup- 
port them. 

But there really isn’t enough, in my opinion. Congressional pres- 
sure. I am also trying to make sure that it becomes a higher level 
attention within the Administration as well. But then there has to 
be some penalties in places you are talking about. That part I can 
provide something for the record on, what we found to be effective. 

Ms. Speier. Would you also provide it to my office? 

Mr. Dodaro. Yes. 

Ms. Speier. Thank you. 

Chairman IssA. I thank the gentlelady. We now go to the gen- 
tleman from South Carolina, Mr. Gowdy. 

Mr. Gowdy. Thank you, Mr. Chairman. Because of your work on 
this issue, and your leadership, I am going to yield my time to you 
for continued questioning. 

Chairman IsSA. You have a great future with this committee. 


Chairman IssA. Mr. Dodaro, I have just a couple of wrap-up 
questions on this time. One of them is, following up on Ms. Speier’s 
question, now that there is no longer a Circuit City, I will use them 
as an example. When I was in business, I did tens of millions of 
dollars with Circuit City. Their receiving system was such that 
they would receive eight boxes one day and two boxes the next day. 
They would record the eight boxes with two short, and then the 
next day when they received the two, they would put them in in- 
ventory and never count them against the two they reported short. 

So over a period of years, I ended up with millions of dollars of 
money they didn’t pay me, and we were constantly showing proofs 
of delivery and so on. Now, Circuit City was easy to do business 
with compared to the Federal Government. So one of the questions 
I have is, within this report, these plugging in of numbers, isn’t 
some it inherent with these contractors delivering and the frustra- 
tion of how the government receives and accounts for the goods? In 
other words, doesn’t it take two to end up with this problem? 

Mr. Dodaro. Definitely, yes. 

Chairman IssA. I wanted to make that clear, because I think the 
gentlelady was right, that we do have to be less tolerant. But I 
think we have to be less tolerant of both sides. 


Mr. Dodaro. Yes. I will give you a classic example. The DOD 
systems, their legacy financial management systems, don’t even 
identify who their trading partner is. So that is a big part of the 
problem, is DOD. So that is a classic case of where you can’t nec- 
essarily automatically fault the other party, because the counter- 
party is potentially causing most of the problem. 

Chairman ISSA. I appreciate that. We will try to work on both 

In closing, on page 25 of your report, where it is Appendix I, it 
says. Chief Financial Officers Act, and it shows the audit results 
by agency. So for example. Commerce got an unqualified agency 
audit by KPMG. And just to give you one more, Ernst & Young did 
not give an unqualified audit on Health and Human Services. And 
PriceWaterhouseCoopers, I want to get all of them in here some- 
where, I don’t see them. 

The fact is, next to most of these unqualified, and not unquali- 
fied, with the exception of Justice, Labor and the National Aero- 
nautics and Space Administration, National Science Foundation 
and the Nuclear Regulatory Commission and the Office of Per- 
sonnel Management. Those were all the exceptions. And the De- 
partment of Energy. 

With the exception of those I just named, all these others have 
a check mark that I want to make sure we say what it means. It 
says, “Agency auditor reported material weakness or non-compli- 
ance.” Now, I oversaw both public and private companies. So I am 
very aware of what my audit is, and I know that there is always 
something that can be improved. 

But when it says material weaknesses and non-compliances, that 
really is not truly an unqualified audit. That is an unqualified ex- 
cept for this qualification, isn’t that true? These are not clean audit 

Mr. Dodaro. These are a separate reporting that is required 
under the Federal Financial Management Improvement Act, where 
the agencies have to demonstrate that they can record things that 
is a standard general ledger transaction and transaction levels, and 
that their systems will comply with accounting standards. And 
what this basically means is that the agencies compile their year- 
end financial statements, many using manual procedures and docu- 
mentation. But their systems are not up to standards in producing 
timely, reliable information throughout the year. 

Chairman IsSA. Let me put this into terms the private sector 
might understand, and you correct me if I am wrong. For example, 
at Commerce or Defense, any number of these agencies that have 
these unqualified but material weaknesses, one, material weakness 
may mean that fraud can go undetected. You might have balance 
sheet that is accurate, but you may have been ripped off, that prop- 
er accounting for whether people actually put in time or don’t put 
in time, they get paid, and you know how much they got paid, but 
they may not have actually done the work. 

All of those are examples, or some of those are examples of mate- 
rial weaknesses in that yes, you have given us a financial state- 
ment that shows where you are, how much you have spent and 
how much you have, but you through haven’t actually told us 
whether the money is flying out the back door through waste, pur- 


chases that are paid for on products not received, those are all ma- 
terial weaknesses that can be and are likely included in many of 
these reports, isn’t that true? 

Mr. Engel. That is correct. Essentially what the unqualified 
opinion on financial statement tells you is that they have a process 
in place to produce a set of financial statements at year-end that 
will appropriately account for the activity in accordance with gen- 
erally accepted accounting principles. It does not speak for the con- 
dition of their underlying internal controls. 

Chairman IssA. So I think for the public, at the close of this, I 
want to say, as chairman, that I look forward to us having all the 
agencies, including the Department of Defense, have unqualified fi- 
nancials. But it actually bears little, it is only a starting point, for 
accounting for every penny for the American people so that we 
know it is actually being exchanged in return for the value that 
was agreed to, isn’t that correct? 

Mr. Dodaro. Yes, that is exactly correct. And actually, the origi- 
nal legislation, the Chief Financial Officers Act, goes to that very 
point about having timely, reliable information, good controls, and 
the audited financial statements are only a step, a tool to achieve 
that longer term, more complete goal. 

Chairman IsSA. I thank you for your testimony today. It has 
been extremely valuable. I won’t say that it is as optimistic and up- 
lifting as we would like. But as always, you give us the truth, even 
if it isn’t what we would love to hear. 

And we stand adjourned. 

[Whereupon, at 11:36 a.m., the committee was adjourned.]